AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 2002
REGISTRATION NOS. 333-90588, 333-90588-01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AIMCO PROPERTIES, L.P.
(Exact name of co-registrant as specified in its charter)
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APARTMENT INVESTMENT AND MANAGEMENT COMPANY -- MARYLAND APARTMENT INVESTMENT AND MANAGEMENT COMPANY -- 84-1259577
AIMCO PROPERTIES, L.P. -- DELAWARE AIMCO PROPERTIES, L.P. -- 84-1275621
(State or other jurisdiction of incorporation or (IRS Employer Identification No.)
organization)
2000 SOUTH COLORADO BOULEVARD, SUITE 2-1000
DENVER, COLORADO 80222
(303) 757-8101
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
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PETER K. KOMPANIEZ
VICE CHAIRMAN AND PRESIDENT
COLORADO CENTER, TOWER TWO
2000 SOUTH COLORADO BOULEVARD, SUITE 2-1000
DENVER, COLORADO 80222
(303) 757-8101
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
JOSEPH A. COCO JONATHAN L. FRIEDMAN
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
FOUR TIMES SQUARE 300 SOUTH GRAND AVENUE
NEW YORK, NEW YORK 10036 LOS ANGELES, CALIFORNIA 90071
(212) 735-3000 (213) 687-5000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this registration statement becomes effective.
If the only securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 12, 2002
PROSPECTUS
AIMCO PROPERTIES, L.P.
IS OFFERING TO ACQUIRE UP TO 120 UNITS OF LIMITED PARTNERSHIP INTEREST OF
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(A PARTICIPANT IN VMS NATIONAL PROPERTIES JOINT VENTURE)
IN EXCHANGE FOR YOUR CHOICE PER UNIT OF:
64.50 OF OUR PARTNERSHIP COMMON UNITS; OR
$3,000 IN CASH.
Generally, you will not recognize any immediate taxable gain or loss if you
exchange your units solely for our securities. However, you will recognize
taxable gain or loss if you exchange your units for cash.
Our offer consideration will be reduced for any distributions subsequently
made or declared by your partnership prior to the expiration of our offer.
We will only accept a maximum of 120 units in response to our offer. If
more units are tendered to us, we will generally accept units on a pro rata
basis according to the number of units tendered by each person. Our offer is not
subject to any minimum number of units being tendered. In addition, if units are
validly tendered and not properly withdrawn prior to the expiration date and the
purchase of all such units would result in there being fewer than 320
unitholders, we will not purchase any units tendered in the offer.
You will not pay any fees or commissions if you tender your units.
Our offer and your withdrawal rights will expire at midnight, New York City
time, on [ ], 2002, unless we extend the deadline. You may withdraw any
tendered units at any time before we have accepted them for payment.
SEE "RISK FACTORS" BEGINNING ON PAGE 29 OF THIS PROSPECTUS FOR A
DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR
OFFER, INCLUDING THE FOLLOWING:
- We determined the offer consideration of $3,000 per unit without any
arms-length negotiations. Our offer consideration is near the low end of
the range of our estimated liquidation values of your partnership ($0 to
$20,633 per unit), and is less than our estimated going concern value of
your partnership of $12,387 per unit. Accordingly, our offer
consideration may not reflect the fair market value of your units.
- A sale of your units for cash may result in a tax liability that exceeds
the amount of cash you receive from us.
- If AIMCO fails to qualify as a REIT, it may have a material adverse
effect on the value of our units.
- Your general partner is a subsidiary of ours and, therefore, has
substantial conflicts of interest with respect to our offer.
- We are making this offer with a view to making a profit and there is a
conflict between our desire to purchase your units at a low price and
your desire to sell your units at a high price.
- Continuation of your partnership will result in our affiliates continuing
to receive management fees from your partnership which would not be
payable if your partnership was liquidated.
- It is possible that we may conduct a subsequent offer at a higher price
after expiration of this offer.
- Unlike your partnership, our policy is to reinvest proceeds from the sale
of our properties or refinancing of our indebtedness.
- We may change our investment, acquisition or financing policies without a
vote of our security holders.
- If you acquire our securities, your investment will change from holding
an interest in a few properties to holding an interest in our large
portfolio of properties, thereby fundamentally changing the nature of
your investment.
- We cannot predict when the properties owned by your partnership may be
sold. Your partnership will be required to sell such properties and
liquidate if your partnership cannot refinance or repay its indebtedness
at maturity in 2008.
- There is currently no market for our units.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
IF YOU ARE A RESIDENT OF THE STATE OF [ ] OR [ ], THE STATE
SECURITIES COMMISSION IN YOUR STATE HAS NOT APPROVED THE OFFERING OF OP UNITS
PURSUANT TO THIS PROSPECTUS. ACCORDINGLY, YOU ARE ONLY ENTITLED TO EXCHANGE YOUR
UNITS FOR CASH.
The Attorney General of the State of New York has not passed on or endorsed
the merits of this offer. Any representation to the contrary is unlawful.
[ ], 2002
TABLE OF CONTENTS
PAGE
----
SUMMARY..................................................... 1
AIMCO AND THE AIMCO OPERATING PARTNERSHIP................... 26
RECENT DEVELOPMENTS......................................... 27
Issuance of Class R Preferred Stock and Class R Preferred
Units.................................................. 27
Redemption of Class K Preferred Stock and Class K
Preferred Units........................................ 27
Approval of Class V High Performance Partnership Units.... 27
Conversion of Class L Convertible Cumulative Preferred
Stock.................................................. 27
Conversion of Class Ten Partnership Preferred Units....... 27
Issuance of Class A Common Stock.......................... 28
Repayment of AIMCO Promissory Note........................ 28
RISK FACTORS................................................ 29
Risks to Unitholders Who Tender Their Units in the
Offer.................................................. 29
Risks to Unitholders Exchanging Units for OP Units in the
Offer.................................................. 31
Risks Associated with Investing in AIMCO.................. 38
Risks to Unitholders Who Do Not Tender Their Units in the
Offer.................................................. 44
SPECIAL FACTORS TO CONSIDER................................. 46
VALUATION OF UNITS.......................................... 47
BACKGROUND AND REASONS FOR THE OFFER........................ 50
Background of the Offer................................... 50
Alternatives Considered................................... 50
Expected Benefits of the Offer............................ 52
Disadvantages of the Offer................................ 52
FAIRNESS OF THE OFFER....................................... 54
Position of the General Partner of Your Partnership With
Respect to the Offer; Fairness......................... 54
Fairness to Unitholders Who Tender Their Units............ 55
Fairness to Unitholders Who Do Not Tender Their Units..... 55
Comparison of Consideration to Alternative
Consideration.......................................... 56
Allocation of Consideration............................... 58
YOUR PARTNERSHIP............................................ 59
General................................................... 59
Your Partnership and Its Property......................... 59
Property Management....................................... 59
Investment Objectives and Policies; Sale or Financing of
Investments............................................ 59
Capital Replacement....................................... 60
Borrowing Policies........................................ 60
Competition............................................... 60
Legal Proceedings......................................... 61
History of the Partnership................................ 61
Fiduciary Responsibility of the General Partner of Your
Partnership............................................ 62
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PAGE
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Distributions and Transfers of Units...................... 62
Beneficial Ownership of Interests in Your Partnership..... 63
Compensation Paid to the General Partner and its
Affiliates............................................. 63
THE OFFER................................................... 64
Terms of the Offer; Expiration Date....................... 64
Acceptance for Payment and Payment for Units.............. 64
Procedure for Tendering Units............................. 65
Withdrawal Rights......................................... 68
Extension of Tender Period; Subsequent Offering Period;
Termination; Amendment................................. 68
Proration................................................. 69
Fractional OP Units....................................... 70
Future Plans of the AIMCO Operating Partnership........... 70
Voting by the AIMCO Operating Partnership................. 70
Dissenters' Rights........................................ 71
Conditions of the Offer................................... 71
Effects of the Offer...................................... 73
Certain Legal Matters..................................... 74
Fees and Expenses......................................... 75
Accounting Treatment...................................... 75
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES............... 76
Tax Opinions.............................................. 76
Tax Consequences of Exchanging Units Solely for OP
Units.................................................. 77
Disguised Sales........................................... 78
Tax Consequences of Exchanging Units for Cash and OP
Units.................................................. 78
Tax Consequences of Exchanging Units Solely for Cash...... 79
Adjusted Tax Basis........................................ 79
Character of Gain or Loss Recognized Pursuant to the
Offer.................................................. 79
Passive Activity Losses................................... 80
Tax Reporting............................................. 80
Foreign Offerees.......................................... 81
Tax Consequences of a Termination of Your Partnership..... 81
TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP
UNITHOLDERS............................................... 81
Partnership Status........................................ 81
Taxation of OP Unitholder................................. 83
Allocations of the AIMCO Operating Partnership Profits and
Losses................................................. 83
Tax Basis of a Partnership Interest....................... 84
Cash Distributions........................................ 84
Tax Consequences Relating to Contributed Assets........... 85
Limitations on Deductibility of Losses.................... 86
Section 754 Election...................................... 87
Depreciation.............................................. 87
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PAGE
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Sale, Redemption or Exchange of OP Units.................. 87
Disguised Sales........................................... 88
Termination of the AIMCO Operating Partnership............ 88
Alternative Minimum Tax................................... 89
Information Returns and Audit Procedures.................. 89
Taxation of Foreign OP Unitholders........................ 90
State, Local and Foreign Taxes............................ 90
TAXATION OF AIMCO AND AIMCO STOCKHOLDERS.................... 90
General................................................... 90
Tax Aspects of AIMCO's Investments in Partnerships........ 96
Taxation of Management Companies.......................... 97
Taxation of Taxable Domestic Stockholders................. 97
Taxation of Foreign Stockholders.......................... 98
Taxation of Tax-Exempt Stockholders....................... 100
State, Local and Foreign Taxes............................ 101
DESCRIPTION OF OP UNITS AND THE AIMCO OPERATING PARTNERSHIP
AGREEMENT................................................. 102
DESCRIPTION OF CLASS A COMMON STOCK......................... 112
COMPARISON OF OP UNITS AND CLASS A COMMON STOCK............. 116
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING
PARTNERSHIP............................................... 119
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS................. 126
CONFLICTS OF INTEREST AND TRANSACTIONS WITH AFFILIATES...... 129
Conflicts of Interest with Respect to the Offer........... 129
Conflicts of Interest that Currently Exist for Your
Partnership............................................ 129
Competition Among Properties.............................. 129
Features Discouraging Potential Takeovers................. 129
Transactions with Affiliates.............................. 130
Future Exchange Offers.................................... 131
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES....... 131
WHERE YOU CAN FIND MORE INFORMATION......................... 131
LEGAL MATTERS............................................... 132
EXPERTS..................................................... 133
ANNEX A -- DIRECTORS AND EXECUTIVE OFFICERS................. A-1
iii
SUMMARY
This summary highlights some of the information in this prospectus. We urge
you to read this entire prospectus, including the information and the financial
statements and notes thereto are incorporated herein by reference. See "Where
You Can Find More Information." Your partnership is one of two joint venture
participants in VMS National Properties Joint Venture ("VMS"), which owns the
properties in which you own an indirect interest.
THE OFFER
In exchange for each of your units, we are offering you a choice of:
- 64.50 of our Partnership Common Units (the "OP Units");
- $3,000 in cash; or
- any combination thereof;
in each case, subject to reduction for any distribution subsequently made or
declared by your partnership prior to the expiration of our offer.
We will accept a maximum of 120 units in response to our offer. Our offer
is not subject to any minimum number of units being tendered.
If you are a resident of the State of [ ] or [ ], the
state securities commission in your state has not approved the offering of OP
Units pursuant to this prospectus. Accordingly, you are only entitled to
exchange your units for cash.
Our offer will expire at midnight, New York City time, on [ ],
2002, unless we extend the deadline. We will not have a subsequent offering
period after the expiration date of the initial offering period (including any
extensions).
For the five years ended December 31, 2001, your partnership paid no
distributions.
AIMCO AND THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of Apartment Investment and Management
Company, or "AIMCO." AIMCO is a Maryland corporation and a real estate
investment trust that owns and manages multifamily apartment properties
throughout the United States. Through its wholly owned subsidiary, AIMCO-GP,
Inc., AIMCO acts as the sole general partner of the AIMCO Operating Partnership.
As of March 31, 2002, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a
limited partner of the AIMCO Operating Partnership, owned approximately an 86%
interest in the AIMCO Operating Partnership. As of March 31, 2002, our portfolio
of owned or managed properties included 333,496 apartment units in 1,887
properties located in 47 states, the District of Columbia and Puerto Rico. Based
on apartment unit data compiled by the National Multi-Housing Council, we
believe that we are one of the largest owners and managers of multifamily
apartment properties in the United States. As of March 31, 2002, we:
- owned or controlled (consolidated) and managed 171,059 units in 666
apartment properties;
- held an equity interest (unconsolidated) and managed 133,278 units in 999
apartment properties; and
- managed for third party owners 29,159 units in 222 apartment properties,
primarily pursuant to long term, non-cancelable agreements.
Our principal executive offices are located at 2000 South Colorado
Boulevard, Tower Two, Suite 2-1000, Denver, Colorado 80222-7900, and our
telephone number is (303) 757-8101.
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AFFILIATION WITH YOUR GENERAL PARTNER
We own the general partner of your partnership, MAERIL, Inc., and the
company that manages the properties owned by VMS.
RISK FACTORS
You should carefully consider the risks set forth under "Risk Factors"
beginning on page 29 of this prospectus. The following highlights some of the
risks associated with our offer and the disadvantages of the offer to you and
should be considered when you review "Summary -- Background and Reasons for the
Offer -- Expected Benefits of the Offer":
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
Offer Consideration Not Based on Third Party Appraisal or Arms-Length
Negotiation. We did not use any third-party appraisal or valuation to determine
the value of any property owned by VMS. We established the terms of our offer,
including the exchange ratio and the cash consideration, without any arms-length
negotiations.
Offer Consideration May Not Represent Fair Market Value. There is no
established or regular trading market for your units, nor is there another
reliable standard for determining the fair market value of your units. The offer
consideration does not necessarily reflect the price that you would receive in
an open market for your units. Such prices could be higher or lower than our
offer consideration.
Offer Consideration Does Not Reflect Future Prospects. Our offer
consideration is based on your partnership's current property income. It does
not ascribe any value to potential future improvements in the operating
performance of your partnership.
Offer Consideration Based on Our Estimate of Liquidation Proceeds. The
offer consideration represents only our estimate of the amount you would receive
if we liquidated your partnership and VMS. In determining the liquidation value,
we used the direct capitalization method to estimate the value of the VMS
properties because we think a prospective purchaser of the properties would
value the properties using this method. In doing so, we applied a capitalization
rate to annual property income. We determined property income using annualized
revenue for the quarter ended March 31, 2002 and actual costs and expenses for
the fiscal year ended December 31, 2001. If actual property income, property
income for a different period or a different capitalization rate was used, a
higher valuation could result. Other methods of valuing your units could also
result in a higher valuation.
Offer Consideration May Be Less Than Liquidation Value. The actual
proceeds obtained from a liquidation are highly uncertain and could be more or
less than our estimate. Accordingly, our offer consideration could be less than
the net proceeds that you would realize upon an actual liquidation of your
partnership and VMS. Our cash offer consideration of $3,000 is near the low end
of the range of our estimated liquidation values of your partnership of $0 to
$20,633 per unit. Even if our cash offer consideration is equal to liquidation
value, if you accept OP Units, you may not ultimately receive an amount equal to
the cash offer consideration when you sell such OP Units or any AIMCO shares you
may receive upon redemption of such OP Units.
Holding Units May Result in Greater Future Value. You might receive more
value if you retain your units until your partnership and VMS are liquidated.
Our cash offer consideration of $3,000 is less than our estimated going value of
your partnership of $12,387 per unit.
Conflicts of Interest With Respect to the Offer. Your general partner is a
subsidiary of ours and, therefore, has substantial conflicts of interest with
respect to our offer. We are making this offer with a view to making a profit.
There is a conflict between our desire to purchase your units at a low price and
your desire to sell your units at a high price.
Conflicts of Interest Relating to Management Fees. Because our
subsidiaries receive fees for managing your partnership and the VMS properties,
a conflict of interest exists between our continuing the
2
partnership and receiving such fees, and the liquidation of the partnership and
the termination of such fees.
Possible Subsequent Offer at a Higher Price. It is possible that we may
make a subsequent offer at a higher price. Such a decision will depend on, among
other things, the performance of your partnership, prevailing economic
conditions, and our interest in acquiring additional units.
Possible Recognition of Taxable Gain on a Sale of Your Units. In general,
if you exchange your units solely for our units, it will not be a taxable
transaction. If you sell your units for cash, you will recognize taxable gain or
loss in an amount equal to the difference between the amount realized on the
sale and your adjusted tax basis in your units. If you exchange your units for
both cash and units, it will be treated, for Federal income tax purposes, as a
partial taxable sale of such units for cash and as a partial tax-free
contribution of such units to the AIMCO Operating Partnership. If you tender
your units for cash or for both cash and units, the "amount realized" will be
measured by the sum of the cash received plus the portion of your partnership's
liabilities allocated to the units sold for Federal income tax purposes. To the
extent that the amount of cash received plus the allocable share of your
partnership's liabilities exceeds your tax basis for the units sold, you will
recognize gain. Consequently, your tax liability resulting from such gain could
exceed the amount of cash you receive from us.
The particular tax consequences of the offer to you will depend upon a
number of factors related to your individual tax situation, including your tax
basis in your units, whether you dispose of all of your units in your
partnership, and whether the "passive loss" rules apply to your investments. You
should review "United States Federal Income Tax Consequences," "-- Taxation of
the AIMCO Operating Partnership and OP Unitholders" and "-- Taxation of AIMCO
and AIMCO Stockholders." Because the income tax consequences of an exchange of
units will not be the same for everyone, you should consult your tax advisor
before determining whether to tender your units pursuant to our offer.
Loss of Future Distributions from Your Partnership. For any units that we
acquire from you, you will not receive any future distributions from your
partnership's operating cash flow or upon a sale of property owned by VMS or a
refinancing of any of its debt. If you tender your units in exchange for OP
Units, you will be entitled to future distributions from us from our operating
cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating
Partnership.
Potential Delay in Payment. We reserve the right to extend the period of
time during which our offer is open and thereby delay acceptance for payment of
any tendered units. The offer may be extended and no payment will be made in
respect of tendered units until the expiration of the offer and the acceptance
of units for payment.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
Fundamental Change in Nature of Investment. If you tender your units in
exchange for our OP Units, you will have changed fundamentally the nature of
your investment from a partnership that distributes to its partners the proceeds
from a sale of a property or a refinancing of its indebtedness, to a partnership
that reinvests the proceeds from sales of properties and refinancings of its
indebtedness. You will have changed from a small partnership with a partnership
termination date of December 31, 2030 to a much larger partnership with a
partnership termination date of 2093.
Fundamental Change in Number of Properties Owned. If you tender your units
for our OP Units, you will have changed your investment from an interest in a
partnership that indirectly owns 15 properties through its interest in VMS, to
an interest in a partnership that invests in and manages a large portfolio of
properties.
Value of OP Unit Consideration. The value of the OP Units that we are
offering for each of your units may be less than our cash offer consideration.
Each OP Unit is redeemable (after a one year holding period) for one share of
AIMCO's Class A common stock (or cash equal to the market value of one share at
the time of redemption). In determining the number of OP Units we are offering
for each unit in your partnership, we divided the cash offer consideration of
$3,000 by $46.63. However, on June 7, 2002, the
3
last reported sale price of the Class A common stock was $46.60. If you exchange
your units for OP Units and subsequently redeem the OP Units, the value of the
shares of AIMCO Class A common stock you receive may be less than our current
cash offer price.
Lack of Trading Market for OP Units. There is no public market for our OP
Units. In addition, the AIMCO Operating Partnership's agreement of limited
partnership restricts the transferability of OP Units. We have no plans to list
the OP Units on a securities exchange. It is unlikely that any person will make
a market in the OP Units, or that an active market for the OP Units will
develop.
Uncertain Future Distributions. Although the AIMCO Operating Partnership
makes quarterly distributions based on its available cash, there can be no
assurance regarding the amounts of available cash that the AIMCO Operating
Partnership will generate or the portion that we will choose to distribute.
Possible Recognition of Taxable Gain on OP Units. There are tax risks
associated with the acquisition, retention and disposition of OP Units. Although
your general partner (which is our subsidiary) has no present intention to
liquidate or sell your partnership's property or prepay the current mortgage on
the property within any specified time period, any such action in the future
generally will require you to fully recognize any deferred taxable gain if you
exchange your units for OP Units. See "Federal Income Taxation of the AIMCO
Operating Partnership and OP Unitholders."
Limitations on Effecting a Change of Control. Our charter has restrictions
on the ownership of our equity securities in order to comply with certain REIT
tax requirements. The limited partners of the AIMCO Operating Partnership are
unable to remove the general partner of the AIMCO Operating Partnership or to
vote in the election of AIMCO's directors unless they own shares of AIMCO. As a
result, our limited partners and stockholders are limited in their ability to
effect a change of control of the AIMCO Operating Partnership and AIMCO.
Limitations on Transfer of OP Units. Investors in our partnership must
hold the OP Units for one year, subject to exceptions. Thereafter transfers may
be made subject to applicable transfer restrictions.
Limited Voting Rights of Holders of OP Units. The AIMCO Operating
Partnership is managed and operated by its general partner. Unlike the holders
of common stock in a corporation, holders of OP Units have only limited voting
rights on matters affecting the AIMCO Operating Partnership's business. Holders
of OP Units have no right to elect the general partner on an annual or other
continuing basis, and the general partner may not be removed by holders of
limited partnership interests. As a result, holders of OP Units have limited
influence on matters affecting the operation of the AIMCO Operating Partnership
and third parties may find it difficult to attempt to gain control or influence
the activities of the AIMCO Operating Partnership. Such matters affecting the
operation of the AIMCO Operating Partnership include liquidation and
distribution policies, property purchases, and potential mergers or
acquisitions.
Litigation Associated with Partnership Acquisitions. We often acquire
interests in limited partnerships that own apartment properties. In some cases
(such as your partnership), we have acquired the general partner of a
partnership and then made an offer to acquire the limited partners' interests in
the partnership. There is a risk that we will be subject to litigation based on
claims that the general partner has breached its fiduciary duties to its limited
partners or that the transaction violates the relevant partnership agreement. As
a result, we may incur costs associated with defending or settling such
litigation or paying any judgment if we lose. As of the present time, no limited
partners of your partnership have initiated lawsuits on such grounds.
Dilution of Interests of Holders of OP Units. We may issue an unlimited
number of additional OP Units or other securities for such consideration and on
such terms as we may establish, without the approval of the holders of OP Units.
Such securities could have priority over the OP Units as to cash flow,
distributions and liquidation proceeds. The effect of any such issuance may be
to dilute the interests of holders of OP Units.
Limitation of Liability. The limitations on the liability of limited
partners for the obligations of a limited partnership have not been clearly
established in some states. If it were determined that the
4
AIMCO Operating Partnership had been conducting business in any state without
compliance with the applicable limited partnership statute, or that the right or
the exercise of the right by the OP Unitholders as a group to make specific
amendments to the agreement of limited partnership or to take other action under
the agreement of limited partnership constituted participation in the "control"
of the AIMCO Operating Partnership's business, then an OP Unitholder could be
held liable under specific circumstances for the AIMCO Operating Partnership's
obligations to the same extent as the general partner.
Conflicts of Interest and Fiduciary Responsibility. Conflicts of interest
have arisen and could arise in the future as a result of the relationships
between the general partner and its affiliates, on the one hand, and the AIMCO
Operating Partnership or any partner thereof, on the other. The directors and
officers of general partner have fiduciary duties to manage the general partner
in a manner beneficial to AIMCO, as the sole stockholder of the general partner.
At the same time, the general partner, as the general partner, has fiduciary
duties to manage the AIMCO Operating Partnership in a manner beneficial to the
AIMCO Operating Partnership and its partners. The duties of the general partner,
as general partner, to the AIMCO Operating Partnership and its partners may
therefore come into conflict with the duties of the directors and officers of
the general partner to its sole stockholder, AIMCO.
Certain United States Tax Risks Associated with an Investment in the OP
Units. For a general discussion of certain United States Federal income tax
consequences resulting from the acquisition, holding, exchanging, and otherwise
disposing of OP Units, see "United States Federal Income Tax
Consequences -- Taxation of the AIMCO Operating Partnership and OP Unitholders."
State, Local And Other Tax Considerations. In addition to United States
Federal income taxes, the AIMCO Operating Partnership and its OP Unitholders may
be subject to state, local and foreign taxation, and may be required to file tax
returns, in various jurisdictions in which the AIMCO Operating Partnership does
business, owns property or resides. Each prospective investor is urged to
consult his tax advisor in this regard.
RISKS ASSOCIATED WITH INVESTING IN AIMCO
Acquisitions May Adversely Affect Results of Operations. The selective
acquisition, development and expansion of apartment properties are one component
of our growth strategy but we can make no assurance as to our ability to
successfully complete transactions in the future. Although we seek to acquire,
develop and expand properties only when such activities increase our net income
on a per share basis, such transactions may fail to perform in accordance with
our expectations. In addition, we may not successfully integrate any acquired
businesses or properties. If we fail to successfully integrate such businesses,
our results of operations could be adversely affected.
Risks Associated with Debt Financing. Our strategy is generally to incur
debt to increase the return on our equity while maintaining acceptable interest
coverage ratios. Payments of principal and interest may leave us with
insufficient cash resources to operate our properties or pay distributions
required to be paid in order to maintain our qualification as a REIT. We are
also subject to the risk that our cash flow from operations will be insufficient
to make required payments of principal and interest, and the risk that existing
indebtedness may not be refinanced or that the terms of any refinancing will not
be as favorable as the terms of existing indebtedness. If we fail to make
required payments of principal and interest on any debt, our lenders could
foreclose on the properties securing such debt with a consequent loss of income
and asset value to us.
Increases in Interest Rates. An increase in interest rates could increase
our interest expense and reduce our cash flow and our ability to service our
indebtedness and make distributions.
Losses Due to Interest Rate Hedging Transactions. From time to time, in
anticipation of refinancing debt, we enter into agreements to reduce the risks
associated with increases in short term interest rates. Although these
agreements provide us with some protection against rising interest rates, these
agreements also reduce the benefits to us when interest rates decline.
5
Covenant Restrictions of Restricted Payments. Some of our debt and other
securities contain covenants that restrict our ability to make distributions or
other payments to our investors unless certain financial tests or other criteria
are satisfied. In some cases, our subsidiaries are subject to similar
provisions, which may restrict their ability to make distributions to us.
Dependence on Distributions from Subsidiaries. All of our properties are
owned, and all of our operations are conducted, by the AIMCO Operating
Partnership and our other subsidiaries. As a result, we depend on distributions
and other payments from the subsidiaries in order to satisfy our financial
obligations and make payments to our investors. The ability of the subsidiaries
to make such distributions and other payments is dependent upon their earnings
and may be subject to statutory or contractual limitations.
Changes in the Real Estate Market. Our ability to make payments to our
investors depends on our ability to generate funds from operations in excess of
required debt payments and capital expenditure requirements. Funds from
operations and the value of our properties may be adversely affected by events
or conditions beyond our control, such as the general economic climate,
competition from other apartment communities and alternative housing and changes
in interest rate levels and the availability of financing
Environmental Liabilities. Various Federal, state and local laws subject
property owners or operators to liability for the costs of removal or
remediation of certain hazardous substances released on a property. These laws
often impose liability without regard to whether the owner or operator knew of,
or was responsible for, the release of the hazardous substances. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties.
Compliance with Laws Benefiting Disabled Persons. Under the Americans with
Disabilities Act of 1990, or ADA, all places of public accommodation are
required to meet certain Federal requirements related to access and use by
disabled persons. Likewise, the Fair Housing Amendments Act of 1988, or FHAA,
requires apartment properties first occupied after March 13, 1990 to be
accessible to the handicapped. We may incur unanticipated expenses to comply
with the ADA and the FHAA.
Affordable Housing Regulations. As of December 31, 2001, we owned or
controlled 28 properties, held an equity interest, with a combined average
ownership percentage of 25%, in 353 properties and managed for third parties 112
properties that benefit from governmental programs intended to provide housing
to people with low or moderate incomes. These programs, which are usually
administered by the United States Department of Housing and Urban Development,
or HUD, or state housing finance agencies, typically provide mortgage insurance,
favorable financing terms or rental assistance payments to the property owners.
As a condition to the receipt of assistance under these programs, the properties
must comply with various requirements, which typically limit rents to
pre-approved amounts. We must obtain the approval of HUD in order to manage, or
acquire a significant interest in, a HUD-assisted or HUD-insured property. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue.
Loss of Property Management Contracts. We manage some properties owned by
third parties. In 2001, we received $17.3 million of revenue from the management
of such properties. We may suffer a loss of revenue if we lose our right to
manage these properties or if the rental revenues upon which our management fees
are based decline.
Dependence on Key Personnel. Although we have entered into employment
agreements with our Chairman and Chief Executive Officer, Terry Considine, and
our Vice Chairman and President, Peter K. Kompaniez, the loss of any of their
services could have an adverse effect on our operations.
Failure to Qualify as a REIT. AIMCO believes that it operates in a manner
that enables it to meet the requirements for qualification as a REIT for Federal
income tax purposes; however, future economic, market, legal, tax or other
considerations may cause it to fail to qualify as a REIT, or its board of
directors may determine to revoke its REIT status. If AIMCO fails to qualify as
a REIT, it will not be allowed a deduction for dividends paid to its
stockholders in computing its taxable income, and AIMCO
6
will be subject to Federal income tax at regular corporate rates. This would
substantially reduce the funds available for payment to AIMCO's investors.
Limitation on Available Cash. As a REIT, AIMCO is subject to annual
distribution requirements, which limit the amount of cash it has available for
other business purposes, including amounts to fund its growth.
Legislative or Other Actions Affecting REITs. The rules dealing with
Federal income taxation are constantly under review by persons involved in the
legislative process and by the IRS and the U.S. Treasury Department. Changes in
the tax laws (which may have retroactive application), could adversely affect
AIMCO's investors.
Other Tax Liabilities. Even if AIMCO qualifies as a REIT, AIMCO and its
subsidiaries may be subject to certain Federal, state and local taxes on its
income and property. Any such taxes would reduce AIMCO's operating cash flow.
Antitakeover Provisions. The 8.7% ownership limit contained in AIMCO's
charter may have the effect of precluding acquisition of control of AIMCO by a
third party without the consent of AIMCO's board of directors. AIMCO's charter
authorizes its board of directors to issue up to 510,587,500 shares of capital
stock. Under the charter, the board of directors has the authority to classify
and reclassify any of AIMCO's unissued shares of capital stock into shares of
preferred stock with such preferences, rights, powers and restrictions as the
board of directors may determine. The authorization and issuance of preferred
stock could have the effect of delaying or preventing someone from taking
control of AIMCO, even if a change in control were in stockholders' best
interests.
Maryland Business Statutes. In addition, as a Maryland corporation, AIMCO
is subject to various Maryland laws which may have the effect of discouraging
offers to acquire AIMCO and of increasing the difficulty of consummating any
such offers, even if AIMCO's acquisition would be in its stockholders' best
interests.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
Balloon Payments. VMS has approximately $93,243,000 of balloon payments
due on its senior mortgage debt in 2008 and $28,250,000 due on its junior
mortgage debt in 2008. If VMS cannot refinance or repay its indebtedness in
2008, VMS will be required to sell its properties and liquidate under the VMS
plan of reorganization.
Recognition of Income Because of the Declining Amount of Depreciation
Deductions from the VMS Properties Without any Corresponding Distributions. As
a limited partner, you are likely to continue to receive allocations of taxable
income from your partnership without any corresponding distributions. Unless you
have losses from passive investments (including VMS) or other tax attributes to
offset such taxable income, you may be required to pay taxes in respect of such
income without any corresponding receipt of cash. We currently estimate, based
on certain projections, that partners in your partnership will receive taxable
income of approximately $120,010 for 2002, $996,611 for 2003, $1,123,893 for
2004, $1,232,876 for 2005, $1,328,159 for 2006, $1,411,870 for 2007 and
$1,474,653 for 2008. The foregoing are merely estimates, and there can be no
assurance that such estimates will prove accurate in the future. This situation
has arisen primarily because of the declining amount of depreciation deductions
from the properties in which your partnership has invested through VMS. All of
the cash flow is currently dedicated to the payment of operating expenses,
capital expenditures and debt service. Accordingly, we estimate that over the
next seven years, the owner of one limited partnership unit will realize
approximately $29,498 in taxable income from your partnership without any cash
distributions to pay the tax due thereon.
Possible Increase in Control of Your Partnership. As a result of the
offer, we may increase our ability to influence voting decisions with respect to
your partnership. However, we will not be able to control voting decisions
unless we acquire more units in another transaction. Also, removal of your
general partner (which is our subsidiary) or the manager of any property owned
by your partnership may become more difficult or impossible without our consent
or approval.
7
Recognition of Gain Resulting from Possible Future Reduction in Your
Partnership's Liabilities. Generally, a decrease in your share of your
partnership's liabilities is treated, for Federal income tax purposes, as a
deemed cash distribution. Although your general partner (which is our
subsidiary) has no current plan or intention to reduce the liabilities of your
partnership, it is possible that future economic, market, legal, tax or other
considerations may cause your general partner to reduce the liabilities of your
partnership. If the liabilities of your partnership were to be reduced, and you
do not tender all of your units pursuant to our offer, you will be treated as
receiving a hypothetical distribution of cash resulting from a decrease in your
share of the liabilities of your partnership. Any such hypothetical distribution
of cash would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
Risk of Inability to Transfer Units for 12-Month Period. Your
partnership's agreement of limited partnership prohibits any transfer of units
without the consent of your general partner (which is our subsidiary). Such
consent may be withheld by your general partner in its sole discretion. Your
general partner must withhold its consent if such transfer would result in the
termination of your partnership for tax purposes which would occur if 50% or
more of the total interest in your partnership is transferred within a 12-month
period. If we acquire a significant percentage of the interest in your
partnership in this offer, you may not be able to a transfer your units for a
12-month period following our offer.
Uncertain Time Frame for Sale of Properties. There may be no way to
liquidate your investment in your partnership in the future until the properties
are sold and VMS is liquidated. VMS currently owns 15 properties. The general
partner of your partnership continually considers whether a property should be
sold or otherwise disposed of after consideration of relevant factors, including
prevailing economic conditions, availability of favorable financing and tax
considerations, with a view to achieving maximum capital appreciation for your
partnership. We cannot predict when the properties will be sold or otherwise
disposed of. However, there is no current plan or intention to sell the
properties in the near future.
VALUATION OF UNITS
We determined the offer consideration by estimating the value of the VMS
properties using the direct capitalization method. This method involves applying
a capitalization rate to the annual property income. A capitalization rate is a
percentage (rate of return), commonly applied by purchasers of residential real
estate to property income to determine the present value of income property. The
lower the capitalization rate utilized the higher the value produced, and the
higher the capitalization rate utilized the lower the value produced. We
determined property income for VMS using annualized revenue for the quarter
ended March 31, 2002 and actual costs and expenses for the fiscal year ended
December 31, 2001. Our method for selecting a capitalization rate begins with
each property being assigned a location and condition rating (e.g., "A" for
excellent, "B" for good, "C" for fair, and "D" for poor). We then adjust the
capitalization rate based on whether the mortgage debt of the properties bear
interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in
excess of 7.5%, the capitalization rate would be increased by 0.25%. The
evaluation of a property's location and condition, and the determination of an
appropriate capitalization rate for a property, is subjective in nature, and
others evaluating the same property might use a different capitalization rate
and derive a different property value. Although the direct capitalization method
is a widely-accepted way of valuing real estate, there are a number of other
methods available to value real estate, each of which may result in different
valuations of a property. Further, in applying the direct capitalization method,
others may make different assumptions and obtain different results. The proceeds
that you would receive if you sold your units to someone else or if your
partnership and VMS were actually liquidated might be higher or lower than our
offer consideration. Based on our low and high estimated total gross property
values for the VMS properties of $178,219,000 to $219,188,000, respectively,
8
we derived a range of estimated unit values of your partnership of $0 to
$20,633. Based on this range of unit values, we have decided to offer you $3,000
per unit.
LOW HIGH
------------- -------------
Gross valuation of partnership properties............... $ 178,219,000 $ 219,188,000
Plus: Cash and cash equivalents......................... 2,058,923 2,058,923
Plus: Other partnership assets, net of security
deposits.............................................. 4,047,336 4,047,336
Less: Mortgage debt, including accrued interest......... (132,338,390) (132,338,390)
Less: GP loans.......................................... (3,677,261) (3,677,261)
Less: Class 3C Claims to PLT & ContiTrade............... (39,585,360) (42,138,521)
Less: Share to MF VMS................................... (5,387,756) (25,872,256)
Less: Accounts payable and accrued expenses............. (1,182,200) (1,182,200)
Less: Other liabilities................................. (957,524) (957,524)
------------- -------------
Partnership valuation before taxes and certain costs.... $ 1,196,768 $ 19,128,107
Less: Extraordinary capital expenditures and deferred
maintenance........................................... (407,673) (407,673)
Less: Closing costs..................................... (789,095) (789,095)
------------- -------------
Estimated net valuation of your partnership............. $ 0 $ 17,931,339
Percentage of estimated net valuation allocated to
holders of units...................................... n/a 29.39%
------------- -------------
Estimated net valuation of units........................ $ 0 $ 5,270,021
Total number of units*............................. 255.42 255.42
------------- -------------
Estimated valuation per unit............................ $ 0.00 $ 20,633.00
============= =============
---------------
* Includes only non-default limited partners.
In order to determine the number of OP Units we are offering for each of
your units, we divided the cash offer consideration of $3,000 by a price of
$46.63 to get 64.50 OP Units per unit.
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the VMS properties in which your partnership
indirectly owns an interest. Our offer provides us with an opportunity to
increase our ownership interest in these properties while providing you and
other investors with an opportunity to liquidate your current investment and to
invest in our OP Units or receive cash, or to retain your units.
In June 1999, we commenced a cash tender offer for your partnership at the
price of $98 per unit, and acquired 18.49 units. On May 15, 2000, we commenced a
cash tender offer for your partnership at the price of $288 per unit, and
acquired 11.99 units. On October 18, 2001, we commenced a cash tender offer at
the price of $1,077 per unit, and acquired 6.33 units in that offer.
Through subsidiaries, AIMCO currently owns, in the aggregate, a 16.17%
interest (or 39.83 units) in your partnership, including the interest held by
the general partner of your partnership.
9
ALTERNATIVES CONSIDERED
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner
(which is our subsidiary):
Liquidation. One alternative to our offer would be for VMS to sell its
assets, distribute the net liquidation proceeds to its partners and for your
partnership, in turn, to distribute its share of such proceeds to its partners
in accordance with your partnership's agreement of limited partnership, and then
dissolve. Partners would be at liberty to use the net liquidation proceeds after
taxes for investment, business, personal or other purposes, at their option. If
VMS were to sell its assets and liquidate, you and your partners would not need
to rely upon capitalization of income or other valuation methods to estimate the
fair market value of your partnership's assets. Instead, such assets would be
valued through negotiations with prospective purchasers. However, a liquidating
sale of property would be a taxable event for you and your partners and could
result in significant amounts of taxable income to you and your partners.
Continuation of Your Partnership Without the Offer. A second alternative
would be for your partnership and VMS to continue operating without our offer. A
number of advantages could result from the continued operation of your
partnership and VMS. Given improving rental market conditions or improved
operating performance, the level of distributions might increase over time. We
believe it is possible that the private resale market for apartment properties
could improve over time, making a sale of properties in a private transaction at
some point in the future a more viable option than it is currently. However,
there are several risks and disadvantages that result from continuing the
operations of your partnership and VMS without the offer. If your partnership
and VMS were to continue operating as presently structured, VMS will be required
to sell its properties and liquidate under the VMS plan of reorganization if VMS
cannot refinance or repay its indebtedness at maturity in 2008. If VMS were to
sell its properties and liquidate, the liquidation proceeds payable to you and
your partners could be more or less than our offer consideration.
In addition, continuation of your partnership without the offer would deny
you and your partners the benefits that your general partner (which is our
subsidiary) expects to result from the offer. For example, a partner of your
partnership would have no opportunity for liquidity unless the units were sold
in a private transaction. Any such sale would likely be at a very substantial
discount from fair market value.
EXPECTED BENEFITS OF THE OFFER
There are five principal advantages of exchanging your units for OP Units:
- Tax Deferral. You generally will not recognize any immediate taxable
gain if you exchange your units solely for OP Units.
- Enhanced Liquidity After One Year. While the holders of the OP Units
must hold such units for one year, subject to certain exceptions, after a
one-year holding period, you may choose to redeem your OP Units and
receive, at our option, shares of AIMCO's Class A Common Stock (on a one-
for-one basis, subject to adjustment in certain circumstances) or an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the NYSE.
- Quarterly Distributions. Your partnership paid no distributions for the
fiscal year ended December 31, 2001. All of the cash flow from your
partnership is currently dedicated to the payment of operating expenses,
capital expenditures and debt service. In addition, you are likely to
continue to receive allocations of taxable income from your partnership
without any corresponding distributions. Current annualized distributions
on the OP Units are $3.28 per unit. Assuming no change in the level of
our distributions, this is equivalent to a distribution of $211.56 per
year on the number of OP Units you will receive in exchange for each of
your partnership units.
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would
10
have the opportunity to participate in the growth of our enterprise and
would benefit from any future increase in the AIMCO stock price and from
any future increase in distributions on the OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
DISADVANTAGES OF THE OFFER.
The principal disadvantages of the offer are:
- Lack of Independent Price Determination. We determined the offer price
and the terms of the offer, including the exchange ratio for OP Units.
The terms of the offer and the nature of the securities could differ if
they were subject to independent third party negotiations.
- No Separate Representation of Limited Partners. In structuring the offer
and determining the offer consideration, no one separately represented
the interests of the limited partners. Although we have a fiduciary duty
to the limited partners, we also have conflicting responsibilities to our
equity holders. We did not appoint, or ask the limited partners to
appoint, a party to represent only their interests.
- No Proposal to Sell the Property. We are not proposing to try to
liquidate the partnership and sell the property and distribute the net
proceeds. An arms-length sale of such property after offering it for sale
through licensed real estate brokers might be a better way to determine
the true value of the property rather than the method we chose. The sale
of the property and the liquidation of the partnership might result in
greater pretax cash proceeds to you than our offer.
- OP Units. OP Units lack a public market, have transfer restrictions and
must be held for one year before they can be redeemed by a holder. The
ultimate return on the OP Units is directly tied to the future price of
AIMCO's Class A Common Stock. If you exchange your units for OP Units,
you could ultimately receive less for such OP Units than the cash price
in our offer.
- Continuation of the Partnership. We are proposing to continue to operate
your partnership and not liquidate it at the present time. Thus, our
offer does not satisfy any expectation that you would receive the return
of your investment in the partnership through a sale of the VMS
properties at the present time. Although the actual proceeds obtained
from a sale of the VMS properties is highly uncertain, we believe that at
the present time, a sale of such properties would result in proceeds
close to the low end of our current estimated range of values for such
properties. Under these circumstances, limited partners of your
partnership would not receive any proceeds from such sale. In addition, a
sale of the VMS properties would be a taxable event to the limited
partners of your partnership and could result in significant taxable
income to the limited partners without any corresponding distributions.
In determining the fairness of the offer, we and your general partner
were aware of the fact that if VMS and your partnership were liquidated,
your general partner (which is our subsidiary) would not continue to
receive the fees that it currently receives. However, this fact did not
affect our determination of whether or not to sell the VMS properties.
The term of your partnership will expire on December 31, 2030, and the
term of VMS will expire on September 26, 2044. If VMS cannot refinance or
repay its indebtedness at maturity in 2008, VMS would be required to
liquidate and sell its properties under the VMS plan of reorganization.
- Possible Recognition of Taxable Gain. If you exercise your redemption
right with respect to the OP Units within two years of the date that you
transfer your units to the AIMCO Operating Partnership, your exchange of
units for OP Units and cash could be treated as a disguised sale of your
units and you would be required to recognize gain or loss in the year of
the exchange on such disguised sale. See "United States Federal Income
Tax Consequences -- Disguised Sales."
11
For a description of certain risks of our offer, see "Risk Factors."
FAIRNESS OF THE OFFER
Fairness to Unitholders. Your general partner is our subsidiary. As a
result, your general partner has a conflict of interest and makes no
recommendation to you as to whether you should tender or refrain from tendering
your units. Your general partner did not participate in the structuring of the
offer. We and your general partner believe that the offer and all forms of
consideration offered are fair to you and the other limited partners of your
partnership. You should make your decision whether to tender based upon a number
of factors, including your financial needs, other financial opportunities
available to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations.
If you choose not to tender any units, your interest in your partnership
will remain unchanged, except that we may own a larger share of the limited
partnership units in your partnership than we did before the offer. If we
acquire a substantial number of units pursuant to the offer, we may be in a
position to influence voting decisions with respect to your partnership. Your
general partner (which is our subsidiary) has no present intention to liquidate,
sell, finance or refinance the VMS properties within any specified time period.
If VMS cannot refinance or repay its indebtedness at maturity in 2008, VMS will
be required to sell its properties and liquidate under the VMS plan of
reorganization.
Comparison of Offer Price to Other Values. In evaluating the offer, your
general partner (which is our subsidiary) has compared our cash offer
consideration to:
- your general partner's estimate of the net proceeds that would be
distributed to you and your partners if VMS and your partnership were
liquidated;
- your general partner's estimate of the going concern value of your
partnership if VMS continues to own and operate its properties; and
- the net asset value of your partnership.
The results of these comparative analyses are summarized as follows:
COMPARISON TABLE
PER UNIT
-------------
Cash offer price............................................ $ 3,000
Alternatives:
Prior cash offer price.................................... $ 1,077
Estimated range of liquidation proceeds................... $0 to $20,633
Estimated going concern value(1).......................... $ 12,387
Net asset value........................................... $ 0
---------------
(1) Assumes a sale of the partnership property in 2008 when the mortgage is due
rather than a refinancing of the mortgages.
YOUR PARTNERSHIP
General. VMS was organized in September 1984 under the laws of the State
of Illinois. Its primary business is real estate ownership and related
operations. VMS was formed for the purpose of making investments in various
types of real properties which offer potential capital appreciation and cash
distributions to its limited partners.
The general partners of VMS are VMS National Residential Portfolio I and
VMS National Residential Portfolio II (your partnership). Your partnership owns
a 29.31% participation interest in VMS.
12
A wholly owned subsidiary of AIMCO serves as manager of the VMS properties.
There are currently 267 units of your partnership issued and outstanding, which
are held of record by 289 limited partners.
VMS's investment portfolio currently consists of the following 15
residential apartment complexes: Buena Vista, a 92-unit complex in Pasadena,
California; Casa de Monterey, a 144-unit complex in Norwalk, California;
Crosswood Park, a 180-unit complex in Citrus Heights, California; Mountain View,
a 168-unit complex in San Dimas, California; Pathfinders Village, a 246-unit
complex in Fremont, California; Scotchollow, a 418-unit complex in San Mateo,
California; The Bluffs, a 137-unit complex in Milwaukee, Oregon; Vista Village,
a 220-unit complex in El Paso, Texas; Chapelle Le Grande, a 105-unit complex in
Merrillville, Indiana; Shadowood, a 120-unit complex in Monroe, Louisiana;
Towers of Westchester Park, a 303-unit complex in College Park, Maryland;
Terrace Gardens, a 126-unit complex in Omaha, Nebraska; North Park Apartments, a
284-unit complex in Evansville, Indiana; Watergate, a 140-unit complex in Little
Rock, Arkansas; and Forest Ridge, a 278-unit complex in Flagstaff, Arizona.
Your partnership's and general partner's principal executive offices are
located at Colorado Center, Tower Two, 2000 South Colorado Boulevard, Suite
2-1000, Denver, Colorado 80222, telephone (303) 757-8101.
For additional information about your partnership and VMS, please refer to
the reports and other information filed by VMS with the Securities and Exchange
Commission. See "Where You Can Find More Information."
Investment Objectives and Policies; Sale or Financing of Investments. Your
general partner (which is our subsidiary) regularly evaluates each property
owned by VMS by considering various factors, such as its financial position and
real estate and capital markets conditions. The general partner monitors the
property's specific locale and sub-market conditions including stability of the
surrounding neighborhood, evaluating current trends, competition, new
construction and economic changes. It oversees the property's operating
performance and continuously evaluates the physical improvement requirements. In
addition, the financing structure for the property including any prepayment
penalties, tax implications, availability of attractive mortgage financing to a
purchaser, and the investment climate are all considered. Any of these factors,
and possibly others, could potentially contribute to any decision by the general
partner to sell, refinance, upgrade with capital improvements or retain the
property. If rental market conditions improve, the level of distributions might
increase over time. It is possible that the private resale market for properties
could improve over time, making a sale of the property in a private transaction
at some point in the future a more viable option than it is currently. After
taking into account the foregoing considerations, your general partner is not
currently seeking a sale of any VMS property primarily because it expects
operating performance to improve in the long term. In making this assessment,
your general partner noted recent occupancy and rental rates. In particular, the
general partner noted that it expects to spend approximately $407,673 for
extraordinary capital improvements and deferred maintenance at the properties in
2002 to repair and update the properties. Although there can be no assurance as
to future performance, these expenditures are expected to improve the
desirability of the properties to tenants. The general partner does not believe
that a sale of any property at the present time would adequately reflect its
future prospects. Another significant factor considered by your general partner
is the likely tax consequences of a sale of a property for cash. Such a
transaction would likely result in tax liabilities for many limited partners.
Term of Your Partnership. Under the VMS joint venture agreement, the term
of VMS will continue until September 26, 2044. However, under your partnership's
agreement of limited partnership, the term of your partnership will expire
December 31, 2030, unless sooner terminated as provided in your partnership
agreement or by law. Limited partners could, as an alternative to tendering
their units, take a variety of possible actions, including voting to liquidate
the partnership or amending the agreement of limited partnership to authorize
limited partners to cause the partnership to merge with another entity or engage
in a "roll-up" or similar transaction.
Capital Replacements. VMS was restricted to annual capital improvements of
$300 per unit for all of the properties, which was the limit set by the senior
and junior mortgage agreements for funding of
13
capital improvements. AIMCO-LP, VMS and the servicer of the senior debt have
agreed to a procedure to assess whether or not capital expenditures, in addition
to those permitted under the $300 per unit limit, are needed at the properties
and the methodology for funding any such capital expenditures. This procedure
was completed for each of the properties. The parties agreed upon approximately
$407,673 in required extraordinary capital expenditures and deferred maintenance
for 2002 and that these costs would be funded out of the cash flows from the
properties that otherwise would be utilized to pay debt service on the junior
debt. As a result, the balloon payment due on the junior debt may be higher at
maturity in January 2008 as accrued but unpaid interest is added to the
principal balance.
Borrowing Policies. Your partnership's agreement of limited partnership
allows your partnership to incur debt. As of December 31, 2001, VMS had mortgage
debt outstanding of $133,272,000. Your partnership's agreement of limited
partnership also allows the general partner of your partnership to lend funds to
your partnership. As of December 31, 2001, your general partner had loans
outstanding of $3,608,000 to your partnership.
Plan of Reorganization. In February 1991, VMS filed for Chapter 11
bankruptcy protection. The VMS plan of reorganization became effective in
September 1993. The plan of reorganization provided that, for both your
partnership and VMS National Residential Portfolio I, operating cash flow
distributions would be made first to the limited partners in an amount equal to
12% per year (on a noncumulative basis) of the contributed capital of the
limited partners; then, to the general partners, a subordinated incentive fee
equal to 10.45% of remaining operating cash flow; and finally, of the balance to
be distributed, 98% to the limited partners and 2% to the general partners.
Under the reorganization plan, if your partnership and VMS were liquidated,
after payment of all liabilities of VMS, the liquidation proceeds of VMS would
be distributed as follows: (1) first to the limited partners of your partnership
and VMS National Residential Portfolio I up to an amount equal to the aggregate
capital contributions of the limited partners; (2) then to the general partners
of VMS up to an amount equal to the aggregate capital contributions of the
general partners; (3) then, among the limited partners of your partnership and
VMS National Residential Portfolio I, any remaining proceeds up to an amount
equal to $62,000,000, allocated based on the participating interest of your
partnership and VMS National Residential Portfolio I in VMS; and (4) finally,
76% of any remaining proceeds to the limited partners and 24% to the general
partners of VMS.
If VMS cannot refinance or repay its indebtedness at maturity in 2008, VMS
will be required to sell its properties and liquidate under the VMS plan of
reorganization. The net liquidation proceeds would be distributed in accordance
with the VMS plan of reorganization.
TERMS OF THE OFFER
General. We are offering to acquire up to 120 units of your partnership
(out of 255.42 units currently outstanding), for consideration per unit of 64.50
OP Units or $3,000 in cash. If you tender units pursuant to the offer, you may
choose to receive any combination of such forms of consideration for your units.
The offer is made upon the terms and subject to the conditions set forth in this
prospectus and the accompanying Letter of Transmittal, including the
instructions thereto, as the same may be supplemented or amended from time to
time. To be eligible to receive OP Units or cash pursuant to the offer, you must
validly tender and not withdraw your units on or prior to the expiration date.
For administrative purposes, the transfer of units tendered pursuant to the
offer will be deemed to take effect as of April 1, 2002, although you will be
entitled to retain any distributions you may have received after such date and
prior to our commencement of this offer.
We intend to solicit any lender consents that may be required in connection
with our offer or any transfer of partnership interests in VMS, VMS National
Residential Portfolio I or your partnership or interests in any entity
controlling such partnerships. Our offer is not conditioned on obtaining such
lender consents.
14
If you are a resident of the State of [ ] or
[ ], the state securities commission in your state has not
approved the offering of OP Units pursuant to this prospectus. Accordingly, you
are only entitled to exchange your units for cash.
If you accept our offer and do not specify the consideration you desire on
the Letter of Transmittal, you will receive cash in exchange for your units.
Expiration Date. Our offer will expire at midnight, New York City time, on
[ ], 2002, unless extended.
Conditions of the Offer. Our offer is not conditioned on the tender of any
minimum number of units. However, our offer is conditioned on a number of other
factors.
Procedures for Tendering. If you desire to accept our offer, you must
complete and sign the Letter of Transmittal in accordance with the instructions
contained therein and forward or hand deliver it, together with any other
required documents, to the Information Agent.
Proration. If the number of units properly tendered and not withdrawn
prior to the expiration date exceeds 47.21% of the outstanding units, upon the
terms and subject to the conditions of the offer, we will accept all units
properly tendered and not withdrawn prior to the expiration date on a pro rata
basis. In the event that proration of tendered units is required, we will
determine the final proration factor as promptly as practicable after the
expiration date. If the purchase of all validly tendered units would result in
there being fewer than 320 holders of units, we will not purchase any units
tendered in the offer.
Withdrawal Rights. You may withdraw your tender of units pursuant to the
offer at any time prior to the their acceptance for payment as provided for
herein.
Purpose of the Offer. The purpose of our offer is to provide us with an
opportunity to increase our investment in apartment properties, and provide you
and your partners with an opportunity to liquidate your current investment and
to invest in the AIMCO Operating Partnership or receive cash, or to retain your
units.
Fractional OP Units. We will issue fractional OP Units, if necessary.
Delivery of OP Units and Cash. We will deliver OP Units and cash as soon
as practicable after acceptance of units for purchase.
Extension; Termination; Amendment. We expressly reserve the right, in our
sole discretion, at any time and from time to time, to:
- extend the period of time during which the offer is open and thereby
delay acceptance of, and payment for, any tendered units;
- terminate the offer and not accept for payment any units not previously
accepted for payment or paid for;
- upon the failure to satisfy any of the conditions to the offer, delay the
acceptance of, or payment for, any units not already accepted for payment
or paid for; and
- amend the offer in any respect (subject to applicable rules regarding
tender offers), including the nature and form of consideration.
Effects of the Offer. As a result of the offer, in our capacity as a
limited partner of your partnership, we will participate in any subsequent
distributions to limited partners, to the extent of units we own, including
those we purchase in the offer. The offer will not affect the operation of any
property owned by VMS because the general partner (which is our subsidiary) of
your partnership and the property manager will remain unchanged.
Voting by the AIMCO Operating Partnership. If we acquire a substantial
number of units pursuant to our offer, we may be in a position to influence
voting decisions with respect to your partnership.
15
However, we will not be able to control voting decisions unless we acquire more
units in another transaction.
Future Plans for Your Partnership. We currently intend that, upon
consummation of the offer, your partnership will continue its business and
operations substantially as they are currently being conducted. We do not have
any present plans or proposals which relate to or would result in any material
changes in your partnership's structure or business. We have no present
intention to cause VMS to sell its properties or to prepay the current mortgages
within any specified time period. If VMS cannot refinance or repay its
indebtedness at maturity in 2008, VMS will be required to sell its properties
and liquidate under the VMS plan of reorganization.
Certain Legal Matters. Except as set forth in this section, based on
information provided by your general partner (which is our subsidiary), we are
not aware of any licenses or regulatory permits that would be material to the
business of your partnership, and that might be adversely affected by our
acquisition of units as contemplated herein. On the same basis, we are not aware
of any filings, approvals or other actions by or with any domestic or foreign
governmental authority or administrative or regulatory agency that would be
required prior to our acquisition of units in this offer that have not been made
or obtained. We are not aware of any jurisdiction in which the making of the
offer is not in compliance with applicable law. If we become aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, we will make a good faith effort to comply with any such law.
Fees and Expenses. We will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of units pursuant to the offer. We
will pay the Information Agent reasonable and customary compensation for its
services in connection with the offer, plus reimbursement for out-of-pocket
expenses. We will indemnify the Information Agent against certain liabilities
and expenses in connection therewith, including liabilities under the Federal
securities laws. We will pay all costs and expenses of printing and mailing this
prospectus and the Letter of Transmittal, and the legal and accounting fees and
expenses in connection with the offer. We estimate that our total costs and
expenses in making the offer (excluding the purchase price of the units payable
to you and your partners) will be approximately $116,033.
Accounting Treatment. Upon consummation of the offer, we will account for
our investment in any acquired units under the purchase method of accounting.
There will be no effect on the accounting treatment of your partnership as a
result of the offer.
No Dissenters' Rights. You are not entitled to dissenters' (appraisal)
rights in connection with the offer.
Other Offers. The AIMCO Operating Partnership is also making a similar
exchange offer to limited partners of VMS National Residential Portfolio I. Such
exchange offer is being made by a separate prospectus.
Information Agent. River Oaks Partnership Services, Inc. is serving as
Information Agent in connection with the offer. Its telephone numbers are (888)
349-2005 and (201) 896-1900. Its fax number is (201) 896-0910.
FEDERAL INCOME TAX CONSEQUENCES
You generally will not recognize any immediate taxable gain or loss for
Federal income tax purposes if you exchange your units solely for OP Units. You
will recognize a gain or loss for Federal income tax purposes on units you sell
for cash. The exchange of your units for cash and OP Units will be treated, for
Federal income tax purposes, as a partial sale of such units for cash and as a
partial tax-free contribution of such units to the AIMCO Operating Partnership.
The foregoing summary is a general discussion of the material Federal
income tax consequences of tendering units in the offer. This summary does not
discuss all aspects of Federal income taxation that may be relevant to you in
light of your specific circumstances or if you are subject to special treatment
16
under the Federal income tax laws. The particular tax consequences of the offer
to you will depend on a number of factors related to your tax situation. You
should review "United States Federal Income Tax Consequences," and "-- Taxation
of AIMCO and AIMCO Stockholders," and consult your tax advisors for a full
understanding of the tax consequences to you of the offer.
COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
There are a number of significant differences between your partnership and
the AIMCO Operating Partnership relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, and investor rights. For example, your general
partner (which is our subsidiary) may be removed by the limited partners while
the limited partners of the AIMCO Operating Partnership cannot remove the
general partner. Also, your partnership is limited as to the number of limited
partner interests it may issue while the AIMCO Operating Partnership has no such
limitation.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
There are a number of significant differences between your units and OP
Units relating to, among other things, the nature of the investment, voting
rights, distributions and liquidity and transferability/ redemption. For
example, unlike the AIMCO OP Units, you have no redemption rights with respect
to your units.
As of March 31, 2002, the AIMCO Operating Partnership had 12,742,302 OP
Units outstanding (excluding interests held by AIMCO). The number of OP Units
you may acquire from us in exchange for your units will represent a lower
percentage of the outstanding limited partnership interests in the AIMCO
Operating Partnership than that of your current ownership interest in your
partnership. In response to our offer, you could elect to receive $3,000 in
cash, 64.50 OP Units or any combination thereof. Both your units and the OP
Units are subject to transfer restrictions and it is unlikely that a real
trading market will ever develop for any of such securities. If you subsequently
redeem OP Units for AIMCO Class A Common Stock, we can make no assurance as to
the value of such shares of AIMCO stock at that time, which may be less than the
cash offer price of $3,000.
CONFLICTS OF INTEREST
Conflicts of Interest with Respect to the Offer. Your general partner is
our subsidiary and, therefore, has substantial conflicts of interest with
respect to the offer, including the fact that replacement of your general
partner could result in a decrease or elimination of the management fees paid to
an affiliate for managing the VMS properties, and our desire to purchase units
at a low price and your desire to sell units at a high price. Your general
partner makes no recommendation as to whether you should tender or refrain from
tendering your units.
Conflicts of Interest that Currently Exist for Your Partnership. We own
both the general partner of your partnership and the manager of the VMS
properties. Your partnership agreement provides that the general partner and its
affiliates receive fees for services rendered to your partnership or VMS. In
addition, the general partner and its affiliates are reimbursed by your
partnership for out-of-pocket expenses incurred on behalf of your partnership or
VMS. The general partner and its affiliates received total fees and
reimbursements of $1,463,000 for the fiscal year ended December 31, 2001. The
property manager received management fees of $1,344,000 for the fiscal year
ended December 31, 2001. We have no current intention of changing the fee
structure for your partnership.
Competition Among Properties. The VMS properties and other properties
owned or managed by us may compete with one another for tenants. However, in
some cases it may be difficult to determine precisely the confines of the market
area for particular properties and some competition may exist. Furthermore, you
should bear in mind that we anticipate acquiring properties in general market
areas where the VMS properties are located. It is believed that this
concentration of properties in a general market area will facilitate overall
operations through collective advertising efforts, staffing and other
17
operational efficiencies. In managing our properties, we attempt to reduce such
conflicts between competing properties by referring prospective tenants to the
property considered to be most conveniently located for the tenants' needs.
Features Discouraging Potential Takeovers. Certain provisions of our
governing documents, as well as statutory provisions under certain state laws,
could be used by our management to delay, discourage or thwart efforts of third
parties to acquire control of us, or a significant equity interest in us.
AIMCO's charter limits ownership of its common stock by any single stockholder
to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts,
registered investment companies and AIMCO's Chairman, Terry Considine). The 8.7%
ownership limit may have the effect of precluding acquisition of control of us
by a third party without the consent of our board of directors. Under AIMCO's
charter, the board of directors has the authority to classify and reclassify any
of its unissued shares of capital stock into shares of preferred stock with such
preferences, rights, powers and restrictions as the board of directors may
determine. The authorization and issuance of preferred stock could have the
effect of delaying or preventing someone from taking control of us, even if a
change in control were in our stockholders' best interests. As a Maryland
corporation, AIMCO is subject to various Maryland laws which may have the effect
of discouraging offers to acquire us and of increasing the difficulty of
consummating any such offers, even if our acquisition would be in our
stockholders' best interests. The Maryland General Corporation Law restricts
mergers and other business combination transactions between us and any person
who acquires beneficial ownership of shares of our stock representing 10% or
more of the voting power without our board of directors' prior approval. Any
such business combination transaction could not be completed until five years
after the person acquired such voting power, and only with the approval of
stockholders representing 80% of all votes entitled to be cast and two-thirds of
the votes entitled to be cast, excluding the interested stockholder, or upon
payment of a fair price. Maryland law also provides that a person who acquires
shares of our stock that represent 10% or more of the voting power in electing
directors will have no voting rights unless approved by a vote of two-thirds of
the shares eligible to vote, excluding the control shares. In addition, Maryland
law may make it more difficult for someone to acquire us, such as a board of
directors' ability to adopt stockholders' rights plans and to fix the record
date, time and place for special meetings of the stockholders.
Future Exchange Offers. Although we have no current plans to conduct
further exchange offers for your units, our plans may change based on future
circumstances. Any such future offers that we might make could be for
consideration that is more or less than the consideration we are currently
offering. We might pay a higher price for any future exchange offers we may make
for units of your partnership.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
We expect that approximately $477,773 plus expenses will be required to
purchase all of the units sought in our offer, if such units are tendered for
cash. We will obtain all such funds from cash from operations, equity issuances
and short term borrowings. For a detailed description of estimated expenses to
be incurred in the offer, see "Source and Amount of Funds and Transactional
Expenses."
18
SELECTED FINANCIAL INFORMATION OF AIMCO
The selected financial information of AIMCO set forth below for the years
ended December 31, 2001, 2000 and 1999 is based on audited financial statements.
The selected financial information set forth below for the three months ended
March 31, 2002 and 2001 is based on unaudited financial statements. This
information should be read in conjunction with such financial statements,
including notes thereto, which are incorporated by reference herein, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in AIMCO's Annual Report on Form 10-K for the year ended December
31, 2001, and Quarterly Report on Form 10-Q for the quarter ended March 31,
2002. See "Where You Can Find More Information." The selected financial
information of AIMCO set forth below for the years ended December 31, 1998 and
1997 is based on audited financial statements previously filed with the
Securities and Exchange Commission.
FOR THE THREE
MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
2002 2001(1) 2001(1) 2000(1) 1999(1) 1998(1) 1997(1)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
OPERATING DATA:
Rental and other property revenues... $ 331,484 $ 316,807 $1,276,476 $1,045,912 $ 533,015 $ 376,511 $ 193,006
Property operating and owned
management expenses................ (127,201) (119,062) (500,716) (437,148) (214,951) (149,120) (77,521)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from property operations...... 204,283 197,745 775,760 608,764 318,064 227,391 115,485
Income (loss) from investment
management business................ 6,250 5,773 27,591 15,795 9,183 (4,871) (1,876)
General and administrative
expenses........................... (3,096) (4,092) (18,530) (18,123) (15,248) (13,568) (5,396)
Depreciation of rental property(2)... (70,526) (93,057) (338,455) (297,179) (131,603) (84,479) (37,741)
Interest expense..................... (81,766) (84,528) (306,730) (269,063) (139,946) (89,424) (51,385)
Interest and other income, net....... 18,743 14,659 68,593 66,241 55,320 29,368 8,676
Operating earnings................... 74,216 26,958 149,797 106,776 84,993 65,866 29,977
Distribution from (to) minority
interest partners in excess of
income............................. 1,586 (10,940) (46,359) (24,375) -- -- --
Discontinued operations, net of
tax................................ 3,971 (681) 16,356 27,316 (1,281) 3,790 2,989
Income before minority interest in
AIMCO Operating Partnership........ 79,773 15,337 119,794 109,717 83,712 69,656 32,697
Net income........................... 70,059 14,018 107,352 99,178 77,527 64,474 28,633
Net income attributable to preferred
stockholders....................... 25,479 18,695 90,331 63,183 53,453 26,533 2,315
Net income attributable to common
stockholders....................... 44,580 (4,677) 17,021 35,995 24,074 37,941 26,318
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation....................... $9,444,296 $7,682,070 $8,261,651 $6,857,818 $4,508,221 $2,798,286 $1,657,207
Real estate, net of accumulated
depreciation....................... 7,794,732 6,485,978 6,658,340 5,950,590 4,092,029 2,569,562 1,503,922
Total assets......................... 9,674,861 8,137,627 8,322,536 7,699,874 5,684,951 4,248,800 2,100,510
Total indebtedness................... 5,592,196 4,601,947 4,637,661 4,224,264 2,581,901 1,660,715 808,530
Mandatorily redeemable convertible
preferred securities............... 20,637 32,270 20,637 32,330 149,500 149,500 --
Stockholders' equity................. 2,897,531 2,714,257 2,716,390 2,501,657 2,259,396 1,902,564 1,045,300
19
FOR THE THREE
MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
2002 2001(1) 2001(1) 2000(1) 1999(1) 1998(1) 1997(1)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
OTHER INFORMATION:
Total owned or controlled properties
(end of period).................... 666 580 557 566 373 242 147
Total owned or controlled apartment
units (end of period).............. 171,059 157,368 157,256 153,872 106,148 63,086 40,039
Total equity properties (end of
period)............................ 999 612 569 683 751 902 515
Total equity apartment units (end of
period)............................ 133,278 99,374 91,512 111,748 133,113 170,243 83,431
Units under management (end of
period)............................ 29,159 56,634 31,520 60,669 124,201 146,034 69,587
Basic earnings per common share...... $ 0.59 $ (0.07) $ 0.23 $ 0.53 $ 0.39 $ 0.84 $ 1.09
Diluted earnings paid per common
share.............................. $ 0.58 $ (0.07) $ 0.23 $ 0.52 $ 0.38 $ 0.80 $ 1.08
Dividends paid per common share...... $ 0.82 $ 0.78 $ 3.12 $ 2.80 $ 2.50 $ 2.25 $ 1.85
Funds from operations(3)............. $ 135,238 $ 126,779 $ 532,251 $ 439,830 $ 321,359 $ 194,746 $ 81,155
Net cash provided by operating
activities......................... $ 119,844 $ 85,153 $ 494,457 $ 400,364 $ 253,257 $ 148,414 $ 73,032
Net cash (used in) provided by
investing activities............... $ (290,790) $ 56,955 $ (132,010) $ (546,981) $ (281,106) $ (328,321) $ (717,663)
Net cash provided by (used in)
financing activities............... $ 198,278 $ (185,484) $ (439,562) $ 202,128 $ 58,148 $ 214,124 $ 668,549
---------------
(1) Certain reclassifications have been made to the 2001, 2000, 1999, 1998 and
1997 amounts to conform with the 2002 presentation. These reclassifications
represent certain eliminations of self-charged management fee income and
expenses in accordance with consolidation accounting principles, as well as
discontinued operations resulting from the adoption of Statement of
Financial Accounting Standard No. 144. Effective January 1, 2001, AIMCO
began consolidating its previously unconsolidated subsidiaries. Prior to
this date, AIMCO had significant influence but did not have control.
Accordingly, such investments were accounted for under the equity method.
(2) Effective July 1, 2001 for certain assets and October 1, 2001 for the
majority of the portfolio, AIMCO extended the estimated useful lives of its
buildings and improvements from a weighted average composite life of 25
years to a weighted average composite life of 30 years. This change
increased net income by approximately $31 million or $0.42 per diluted unit
in 2001.
(3) AIMCO's management believes that the presentation of funds from operations
or "FFO", when considered with the financial data determined in accordance
with generally accepted accounting principles, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to AIMCO, nor
should it be considered as an alternative to net income or as an indicator
of operating performance. The Board of Governors of the National Association
of Real Estate Investment Trusts ("NAREIT") defines FFO as net income
(loss), computed in accordance with generally accepted accounting
principles, excluding gains and losses from extraordinary items and
disposals from discontinued operations, net of related income taxes, plus
real estate related depreciation and amortization (excluding amortization of
financing costs), including depreciation for unconsolidated partnerships,
joint ventures and discontinued operations. AIMCO calculates FFO based on
the NAREIT definition, as further adjusted for minority interest in the
AIMCO Operating Partnership, plus amortization of intangibles, plus
distributions, to or less distributions from, minority interest partners in
excess of income, and less dividends on preferred stock. AIMCO calculates
FFO (diluted) by adding back the interest expense and preferred dividends
relating to convertible securities whose conversion is dilutive to FFO.
AIMCO's management believes that presentation of FFO provides investors with
industry-accepted measurements which help facilitate an understanding of its
ability to make required dividend payments, capital expenditures and
principal payments on its debt. There can be no assurance that AIMCO's basis
of computing FFO is comparable with that of other REITs.
20
The following is a reconciliation of net income to funds from operations:
FOR THE THREE
MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
------------------- ---------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
-------- -------- -------- -------- -------- -------- -------
Net income................................. $ 70,059 $ 14,018 $107,352 $ 99,178 $ 77,527 $ 64,474 $28,633
Real estate depreciation, net of minority
interests................................ 62,363 85,696 325,854 275,967 121,539 80,213 33,751
Real estate depreciation related to
unconsolidated entities.................. 7,593 14,698 57,506 59,360 104,419 34,495 9,632
Discontinued operations depreciation, net
of minority interests.................... 735 1,483 7,195 1,767 495 501 232
Distribution to (from) minority interest
partners in excess of income............. (1,586) 10,940 47,701 24,375 -- -- --
Extraordinary item......................... -- -- -- -- -- -- 269
Amortization of intangibles................ 1,124 4,901 18,729 12,068 36,731 26,177 2,535
Income tax arising from disposals from
discontinued operations.................. 768 -- 3,202 -- -- -- --
Gain on disposals from discontinued
operations............................... (3,956) (66) (17,394) (26,335) 1,785 (4,674) (2,720)
Gain on disposition of land................ -- -- 3,843 -- -- -- --
Deferred income tax benefit................ -- -- -- 154 1,763 9,215 4,894
Interest expenses on mandatorily redeemable
convertible preferred securities......... 260 525 1,568 8,869 4,858 -- --
Preferred stock dividends and
distributions............................ (11,836) (6,735) (35,747) (26,112) (33,943) (20,837) (135)
Minority interest in AIMCO
Operating Partnership...................... 9,714 1,319 12,442 10,539 6,185 5,182 4,064
-------- -------- -------- -------- -------- -------- -------
Funds from operations...................... $135,238 $126,779 $532,251 $439,830 $321,359 $194,746 $81,155
======== ======== ======== ======== ======== ======== =======
21
SELECTED FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P.
The selected financial information of the AIMCO Operating Partnership set
forth below for the years ended December 31, 2001, 2000 and 1999 is based on
audited financial statements. The selected financial information set forth below
for the three months ended March 31, 2002 and 2001 is based on unaudited
financial statements. This information should be read in conjunction with such
financial statements, including notes thereto, which are incorporated by
reference herein, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the AIMCO Operating Partnership's Annual
Report on Form 10-K for the year ended December 31, 2001, and Quarterly Report
on Form 10-Q for the quarter ended March 31, 2002. See "Where You Can Find More
Information." The selected financial information of the AIMCO Operating
Partnership set forth below for the years ended December 31, 1998 and 1997 is
based on audited financial statements previously filed with the Securities and
Exchange Commission.
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
2002 2001(1) 2001(1) 2000(1) 1999(1) 1998(1) 1997(1)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
Rental and other property
revenues............... $ 331,484 $ 316,807 $1,276,476 $1,045,912 $ 530,981 $ 373,335 $ 193,006
Property operating and
owned management
expenses............... (127,201) (119,062) (500,716) (437,148) (214,110) (147,414) (77,521)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from property
operations............. 204,283 197,745 775,760 608,764 316,871 225,921 115,485
Income (loss) from
investment management
business............... 6,250 5,773 27,591 15,795 8,605 (6,103) (1,876)
General and
administrative
expenses............... (3,096) (4,092) (18,530) (18,123) (14,152) (10,532) (5,396)
Depreciation of rental
property(2)............ (70,526) (93,057) (338,455) (297,179) (131,107) (83,752) (37,741)
Interest expense......... (81,766) (84,528) (306,730) (269,063) (138,976) (88,208) (51,385)
Interest and other
income, net............ 18,743 14,659 68,593 66,241 54,098 28,170 8,676
Operating earnings....... 74,216 26,958 149,797 106,776 81,971 65,525 29,977
Distribution from (to)
minority interest
partners in excess of
income................. 1,586 (10,940) (46,359) (24,375) -- -- --
Discontinued operations,
net of tax............. 3,122 (681) 17,626 27,316 (1,281) 3,403 2,989
Net income............... 78,924 15,337 121,064 109,717 80,690 68,928 32,697
Net income attributed to
preferred
unitholders............ 28,195 20,796 100,134 70,217 54,173 26,533 2,315
Net income attributed to
common unitholders..... 50,729 (5,459) 20,930 39,500 26,517 42,395 30,382
22
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
2002 2001(1) 2001(1) 2000(1) 1999(1) 1998(1) 1997(1)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
BALANCE SHEET
INFORMATION:
Real estate, before
accumulated
depreciation........... $9,444,296 $7,682,070 $8,261,651 $6,857,818 $4,508,221 $2,766,857 $1,657,207
Real estate, net of
accumulated
depreciation........... 7,795,237 6,486,483 6,658,845 5,951,095 4,092,534 2,538,858 1,503,922
Total assets............. 9,573,810 8,136,927 8,216,615 7,699,174 5,684,251 4,186,764 2,100,510
Total indebtedness....... 5,592,196 4,601,947 4,637,661 4,224,264 2,581,901 1,601,730 808,530
Mandatorily redeemable
convertible preferred
securities............. 20,637 32,270 20,637 32,330 149,500 149,500 --
Partners capital......... 3,326,572 3,032,646 3,085,846 2,831,964 2,486,889 2,153,335 960,176
OTHER INFORMATION:
Total owned or controlled
properties (end of
period)................ 661 580 552 566 373 234 147
Total owned or controlled
apartment units (end of
period)................ 169,945 157,368 156,142 153,872 106,148 61,672 40,039
Total equity properties
(end of period)........ 1,004 612 574 683 751 902 515
Total equity apartment
units (end of
period)................ 134,392 99,374 92,626 111,748 133,113 171,657 83,431
Units under management
(end of period)........ 29,159 56,634 31,520 60,669 124,201 146,034 69,587
Basic earnings per
unit................... $ 0.58 $ (0.07) $ 0.25 $ 0.53 $ 0.39 $ 0.80 $ 1.09
Dividends paid per
unit................... $ 0.57 $ (0.07) $ 0.25 $ 0.52 $ 0.38 $ 0.78 $ 1.08
Distributions paid per
common OP unit......... $ 0.82 $ 0.78 $ 3.12 $ 2.80 $ 2.50 $ 2.25 $ 1.85
Funds from
operations(3).......... $ 134,181 $ 126,779 $ 528,653 $ 439,830 $ 320,434 $ 193,830 $ 81,155
Net cash provided by
operating activities... $ 119,368 $ 85,153 $ 491,846 $ 400,364 $ 254,380 $ 144,152 $ 73,032
Net cash (used in)
provided by investing
activities............. $ (290,412) $ 56,955 $ (140,638) $ (545,981) $ (241,078) $ (342,541) $ (717,663)
Net cash provided by
(used in) financing
activities............. $ 198,166 $ (185,484) $ (430,245) $ 201,128 $ 35,470 $ 214,133 $ 668,549
---------------
(1) Certain reclassifications have been made to the 2001, 2000, 1999, 1998 and
1997 amounts to conform with the 2002 presentation. These reclassifications
represent certain eliminations of self-charged management fee income and
expenses in accordance with consolidation accounting principles, as well as
discontinued operations resulting from the adoption of Statement of
Financial Accounting Standard No. 144. Effective January 1, 2001, the AIMCO
Operating Partnership began consolidating its previously unconsolidated
subsidiaries. Prior to this date, the AIMCO Operating Partnership had
significant influence but did not have control. Accordingly, such
investments were accounted for under the equity method.
(2) Effective July 1, 2001 for certain assets and October 1, 2001 for the
majority of the portfolio, the AIMCO Operating Partnership extended the
estimated useful lives of its buildings and improvements from a weighted
average composite life of 25 years to a weighted average composite life of
30 years. This change increased net income by approximately $36 million or
$0.42 per diluted unit in 2001.
(3) The AIMCO Operating Partnership's management believes that the presentation
of funds from operations or "FFO", when considered with the financial data
determined in accordance with
23
generally accepted accounting principles, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to the AIMCO
Operating Partnership, nor should it be considered as an alternative to net
income or as an indicator of operating performance. The Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT")
defines FFO as net income (loss), computed in accordance with generally
accepted accounting principles, excluding gains and losses from
extraordinary items and disposals from discontinued operations, net of
related income taxes, plus real estate related depreciation and amortization
(excluding amortization of financing costs), including depreciation for
unconsolidated partnerships, joint ventures and discontinued operations. The
AIMCO Operating Partnership calculates FFO based on the NAREIT definition,
plus amortization of intangibles, plus distributions to, or less
distributions from, minority interest partners in excess of income, and less
dividends on preferred units. The AIMCO Operating Partnership calculates FFO
(diluted) by adding back the interest expense and preferred distributions
relating to convertible securities whose conversion is dilutive to FFO. The
AIMCO Operating Partnership's management believes that presentation of FFO
provides investors with industry-accepted measurements which help facilitate
an understanding of its ability to make required dividend payments, capital
expenditures and principal payments on its debt. There can be no assurance
that the AIMCO Operating Partnership's basis of computing FFO is comparable
with that of other REITs.
The following is a reconciliation of net income to funds from operations:
FOR THE THREE
MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
------------------- ---------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
-------- -------- -------- -------- -------- -------- -------
Net income.......................... $ 78,924 $ 15,337 $121,064 $109,717 $ 80,690 $ 68,928 $32,697
Real estate depreciation, net of
minority interests................ 62,363 85,696 326,309 275,967 121,617 79,713 33,751
Discontinued operations
depreciation, net of minority
interest.......................... 527 1,483 3,326 1,767 495 501 232
Real estate depreciation related to
unconsolidated entities........... 7,593 14,698 57,506 59,360 103,726 34,420 9,632
Extraordinary item.................. -- -- -- -- -- -- 269
Amortization of intangibles......... 1,124 4,901 18,729 12,068 36,731 26,177 2,535
Income tax arising from disposals
from discontinued operations...... 768 -- 3,202 -- -- -- --
Distribution (from) to minority
interest partners in excess of
income............................ (1,586) 10,940 47,701 24,375 -- -- --
Gain on disposals from discontinued
operations........................ (3,956) (66) (18,848) (26,335) 1,785 (4,287) (2,720)
Gain on disposition of land......... -- -- 3,843 -- -- -- --
Deferred income tax benefit......... -- -- -- 154 1,763 9,215 4,894
Interest expenses on mandatorily
redeemable convertible preferred
securities........................ 260 525 1,568 8,869 6,892 -- --
Preferred unit distributions........ (11,836) (6,735) (35,747) (26,112) (33,265) (20,837) (135)
-------- -------- -------- -------- -------- -------- -------
Funds from operations............... $134,181 $126,779 $528,653 $439,830 $320,434 $193,830 $81,155
======== ======== ======== ======== ======== ======== =======
24
SELECTED FINANCIAL INFORMATION OF VMS NATIONAL PROPERTIES JOINT VENTURE
The selected financial information of VMS set forth below for the years
ended December 31, 2001, 2000 and 1999 is based on audited financial statements.
The selected financial information set forth below for the three months ended
March 31, 2002 and 2001 is based on unaudited financial statements. This
information should be read in conjunction with such financial statements,
including notes thereto, which are incorporated by reference herein, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Your Partnership" in the Annual Report on Form 10-K of VMS for the
year ended December 31, 2001, and the Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002. See "Where You Can Find More Information." The
selected financial information of VMS set forth below for the years ended
December 31, 1998 and 1997 is based on audited financial statements previously
filed with the Securities and Exchange Commission.
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
OPERATING DATA:
Total revenues.............. $ 7,885 $ 8,235 $ 33,249 $ 31,015 $ 28,658 $ 27,956 $ 25,577
Net income (loss)........... (1,396) 310 (2,910) (40) (6,402) (6,958) 606
Net income (loss) per
Limited Partnership Unit
(Portfolio II)............ (1,502) 333 (3,131) (45) (6,992) (7,493) 646
Distributions per Limited
Partnership Unit.......... 0 0 0 0 0 0
BALANCE SHEET DATA:
Cash and cash equivalents... 2,505 2,603 5,048 2,153 2,004 931 2,510
Investment property, net of
accumulated
depreciation.............. 59,515 60,236 60,485 60,375 61,686 65,829 68,596
Total assets................ 66,249 68,384 68,919 68,879 68,445 71,937 73,542
Mortgage note payable....... 131,325 137,262 133,272 137,732 137,811 139,732 139,449
Partners' capital
(deficit)................. (162,350) (157,734) (160,954) (158,044) (158,009) (151,607) (144,660)
CASH FLOWS:
Net increase (decrease) in
cash and cash
equivalents............... (2,543) 450 2,895 149 1,073 (1,579) 722
Net cash provided by
operating activities...... 1,224 2,073 7,958 8,632 6,260 5,545 (11,301)
COMPARATIVE PER UNIT DATA
Set forth below are historical cash distributions per unit of your
partnership for the year ended December 31, 2001, and the cash distributions
payable on the number of OP Units issuable in exchange therefor:
ANNUAL
DISTRIBUTIONS
-------------
Units of VMS National Residential Portfolio II.............. $ 0
Equivalent cash distributions on OP Units(1)................ $201.24
---------------
(1) Calculated by multiplying the exchange ratio of 64.50 OP Units per unit by
the distributions paid on the OP Units of $3.12 per unit for the year ended
December 31, 2001.
25
AIMCO AND THE AIMCO OPERATING PARTNERSHIP
AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts
substantially all of the operations of AIMCO. AIMCO is a Maryland corporation
and a real estate investment trust that owns and manages multifamily apartment
properties throughout the United States. Through its wholly owned subsidiaries,
AIMCO-GP, the sole general partner of the AIMCO Operating Partnership, and
AIMCO-LP, as of March 31, 2002, AIMCO held approximately an 86% interest in the
AIMCO Operating Partnership. Based on apartment unit data compiled by the
National Multi-Housing Council, we believe that AIMCO is one of the largest
owners and managers of multifamily apartment properties in the United States,
with a total portfolio of 333,496 apartment units in 1,887 properties located in
47 states, the District of Columbia and Puerto Rico. As of March 31, 2002,
AIMCO:
- owned or controlled (consolidated) and managed 171,059 units in 666
apartment properties;
- held an equity interest (unconsolidated) and managed 133,278 units in 999
apartment properties; and
- managed for third party owners 29,159 units in 222 apartment properties,
primarily pursuant to long term, non-cancelable agreements.
AIMCO's Class A Common Stock is listed and traded on the NYSE under the
symbol "AIV." On June 7, 2002, the last reported sale price of AIMCO Class A
Common Stock on the NYSE was $46.60. The following table shows the high and low
reported sales prices and dividends declared per share of AIMCO's Class A Common
Stock for the periods indicated. The table also shows the distributions per unit
declared on the OP Units for the same periods.
PARTNERSHIP
CLASS A COMMON STOCK COMMON
-------------------------- UNITS
CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION
----------------- ------ ------ -------- ------------
2002
Second Quarter (through June 7, 2002)................ $51.46 $46.17 $0.8200 $0.8200
First Quarter........................................ 48.65 42.88 0.8200 0.8200
2001
Fourth Quarter....................................... 46.56 41.44 0.7800 0.7800
Third Quarter........................................ 49.19 43.63 0.7800 0.7800
Second Quarter....................................... 48.25 42.25 0.7800 0.7800
First Quarter........................................ 49.81 40.31 0.7800 0.7800
2000
Fourth Quarter....................................... 50.06 42.63 0.7000 0.7000
Third Quarter........................................ 49.38 43.69 0.7000 0.7000
Second Quarter....................................... 45.25 37.75 0.7000 0.7000
First Quarter........................................ 39.94 36.31 0.7000 0.7000
1999
Fourth Quarter....................................... 40.19 34.06 0.6250 0.6250
Third Quarter........................................ 42.63 37.31 0.6250 0.6250
Second Quarter....................................... 44.06 35.31 0.6250 0.6250
First Quarter........................................ 41.63 35.00 0.6250 0.6250
The principal executive offices of AIMCO, AIMCO-GP, AIMCO-LP and the AIMCO
Operating Partnership are located at 2000 South Colorado Boulevard, Tower Two,
Suite 2-1000, Denver, Colorado 80222, and their telephone number is (303)
757-8101.
26
RECENT DEVELOPMENTS
ISSUANCE OF CLASS R PREFERRED STOCK
On April 11, 2002, AIMCO sold an additional 1,000,000 shares of Class R
Preferred Stock, par value $0.01 per share, in a registered public offering. The
net proceeds of approximately $25 million were used to repay short-term
indebtedness.
REDEMPTION OF CLASS K PREFERRED STOCK AND CLASS K PREFERRED UNITS
Subsequent to March 31, 2002, AIMCO redeemed for Class A Common Stock all
remaining outstanding shares of its Class K Preferred Stock at a redemption
price of $27.2125 per share of Class K Preferred Stock. The redemption price was
paid in shares of Class A Common Stock at a price of $45.7835 per share, which
resulted in the issuance of 0.5944 shares of Class A Common Stock for each share
of Class K Preferred Stock redeemed. Approximately 4,340,000 shares of Class K
Preferred Stock were either converted into or redeemed for approximately
2,580,000 shares of Class A Common Stock.
Concurrently with the redemption of the Class K Preferred Stock, the AIMCO
Operating Partnership redeemed all remaining Class K Preferred Units at a
redemption price of $27.2125 per Class K Preferred Unit. The redemption price
was paid in Partnership Common Units at a price of $45.7835 per unit, which
resulted in the issuance of 0.5944 Partnership Common Units for each Class K
Preferred Unit redeemed. Approximately 4,340,000 Class K Preferred Units were
either converted into or redeemed for approximately 2,580,000 Partnership Common
Units.
APPROVAL OF CLASS V HIGH PERFORMANCE PARTNERSHIP UNITS
On April 26, 2002, AIMCO shareholders approved the sale by the AIMCO
Operating Partnership of 5,000 of its Class V High Performance Partnership Units
to a limited liability company owned by a limited number of AIMCO employees for
an offering price of $1.1 million. The Class V Units have identical
characteristics to the Class IV Units sold in 2001, except for the dilutive
impact limit, which was reduced from 1.5% to 1%, and a different three-year
measurement period. The valuation period of the Class V Units began on January
1, 2002, and will end on December 31, 2004. At March 31, 2002, AIMCO did not
meet the required measurement benchmarks for the Class V Units, and therefore,
AIMCO did not record any value to these units in the consolidated financial
statements, nor did they have any dilutive effect.
CONVERSION OF CLASS L CONVERTIBLE CUMULATIVE PREFERRED STOCK
On May 6, 2002, GE Capital Equity Investments, Inc. converted 2,500,000 of
its shares of AIMCO Class L Convertible Cumulative Preferred Stock, with a face
value of approximately $62.5 million, into 1,344,664 shares of Class A Common
Stock. Concurrently, the AIMCO Operating Partnership converted 2,500,000 Class L
Partnership Preferred Units into 1,344,664 Partnership Common Units. As a result
of this conversion, as of May 6, 2002, 2,500,000 shares of Class L Preferred
Stock remain outstanding.
CONVERSION OF CLASS TEN PARTNERSHIP PREFERRED UNITS
On March 11, 2002, the AIMCO Operating Partnership issued 7,934,920 Class
Ten Partnership Preferred Units. As of the date hereof, all of the Class Ten
Preferred Units have been converted into either Partnership Common Units or
Class R Preferred Units. On March 25, 2002, 1,030,800 Class Ten Preferred Units
were converted into 1,000,000 Class R Preferred Units; on April 11, 2002,
1,013,600 Class Ten Preferred Units were converted into 1,000,000 Class R
Preferred Units; and, on June 5, 2002, 5,890,520 Class Ten Preferred Units were
converted into 3,189,581 Partnership Common Units.
27
ISSUANCE OF CLASS A COMMON STOCK
On June 5, 2002, AIMCO completed the sale of 8,000,000 shares of its Class
A Common Stock in an underwritten public offering. The net proceeds from the
sale of the shares of Class A Common Stock, after deducting underwriting
discounts and commissions and expenses related to the offering, were
$369,210,000. The net proceeds were invested in the AIMCO Operating Partnership,
which used approximately $279,500,000 of such net proceeds to repay the AIMCO
Operating Partnership's outstanding indebtedness under its revolving credit
facility. The AIMCO Operating Partnership used the remaining net proceeds to
prepay a term loan, the proceeds of which were used to fund the acquisition of
Casden Properties Inc. in March 2002.
REPAYMENT OF AIMCO PROMISSORY NOTE
On March 11, 2002, in connection with the acquisition of Casden Properties
Inc., AIMCO delivered a promissory note in favor of the AIMCO Operating
Partnership in the principal amount of $198,373,000. As of the date hereof, the
promissory note has been paid in full with the proceeds from AIMCO's sale of its
Class R Preferred Stock and Class A Common Stock.
28
RISK FACTORS
The following sets forth certain risks and disadvantages of the offer and
should be read and considered when reviewing the potential benefits of the offer
set forth in "Background and Reasons for the Offer -- Expected Benefits of the
Offer."
RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER
WE DID NOT OBTAIN A THIRD PARTY VALUATION OR APPRAISAL AND DID NOT DETERMINE
OUR OFFER CONSIDERATION THROUGH ARMS-LENGTH NEGOTIATION.
We did not use any third-party appraisal or valuation to determine the
value of the VMS properties. We established the terms of our offer, including
the exchange ratios and the cash consideration without any arms-length
negotiations. It is uncertain whether our offer consideration reflects the value
which would be realized upon a sale of your units or a liquidation of your
partnership's assets. Because of our affiliation with your general partner, your
general partner makes no recommendation to you as to whether you should tender
your units.
OUR OFFER CONSIDERATION MAY NOT REPRESENT THE FAIR MARKET VALUE FOR YOUR
UNITS.
There is no established or regular trading market for your units, nor is
there another reliable standard for determining the fair market value of your
units. The offer consideration does not necessarily reflect the price that you
would receive in an open market for your units. Such prices could be higher or
lower than our offer consideration.
OUR OFFER CONSIDERATION DOES NOT REFLECT FUTURE PROSPECTS.
Our offer consideration is based on your partnership's historical property
income. It does not ascribe any value to potential future improvements in the
operating performance of your partnership.
OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS.
The offer consideration represents only our estimate of the amount you
would receive if we liquidated VMS and your partnership. In determining the
liquidation value, we used the direct capitalization method to estimate the
value of the VMS properties because we think a prospective purchaser of the
properties would value the properties using this method. In doing so, we applied
a capitalization rate to annual property income. We determined property income
using annualized revenue for the quarter ended March 31, 2002 and actual costs
and expenses for the fiscal year ended December 31, 2001. If actual property
income, property income for a different period or a different capitalization
rate was used, a higher valuation could result. Other methods of valuing your
units could also result in a higher valuation.
OUR OFFER CONSIDERATION MAY NOT REPRESENT LIQUIDATION VALUE.
The actual proceeds obtained from a liquidation are highly uncertain and
could be more or less than our estimate. Accordingly, our offer consideration
could be less than the net proceeds that you would realize upon an actual
liquidation of your partnership and VMS. Our cash offer consideration of $3,000
is near the low end of the range of our estimated liquidation values of your
partnership of $0 to $20,633 per unit. Even if our cash offer consideration is
equal to liquidation value, if you accept OP Units, you may not ultimately
receive an amount equal to the cash offer consideration when you sell such OP
Units or any AIMCO shares you may receive upon redemption of such OP Units.
HOLDING YOUR UNITS MAY RESULT IN GREATER FUTURE VALUE.
You might receive more pretax cash consideration if you do not tender your
units and, instead, continue to hold your units and ultimately receive proceeds
from a liquidation of your partnership. Our cash after consideration of $3,000
is less than our estimated going concern value of your partnership of $12,387
per unit.
29
YOUR GENERAL PARTNER FACES CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER.
Your general partner is a subsidiary of AIMCO and the AIMCO Operating
Partnership and, therefore, has substantial conflicts of interest with respect
to our offer. We are making this offer with a view to making a profit. There is
a conflict between our desire to purchase your units at a low price and your
desire to sell your units at a high price. Another conflict is the fact that a
decision of the limited partners of your partnership to remove, for any reason,
your general partner or the manager of the VMS properties from its current
position would result in a decrease or elimination of the substantial fees paid
to your general partner or the property manager for services provided to your
partnership. Such conflicts of interest in connection with our offer and our
operation's differ from those conflicts of interest that currently exist for
your partnership.
YOUR GENERAL PARTNER IS NOT MAKING A RECOMMENDATION WITH RESPECT TO THE OFFER.
The general partner of your partnership makes no recommendation as to
whether or not you should tender or refrain from tendering your units. You must
make your own decision whether or not to participate in the offer based upon a
number of factors, including several factors that may be personal to you, such
as your financial position, your need or desire for liquidity, your preferences
regarding the timing of when you might wish to sell your units, other financial
opportunities available to you, and your tax position and the tax consequences
to you of selling your units.
YOUR GENERAL PARTNER FACES CONFLICTS OF INTEREST RELATING TO MANAGEMENT FEES.
Since our subsidiaries receive fees for managing your partnership and the
VMS properties, a conflict of interest exists between our continuing the
partnership and receiving such fees, and the liquidation of the partnership and
the termination of such fees.
WE MAY MAKE A FUTURE OFFER AT A HIGHER PRICE.
It is possible that we may make a subsequent offer at a higher price. Such
a decision will depend on, among other things, the performance of your
partnership, prevailing interest rates, and our interest in acquiring additional
limited partnership interests.
YOU MAY RECOGNIZE TAXABLE GAIN ON A SALE OF YOUR UNITS.
In general, if you exchange your units solely for our OP Units, it will not
be a taxable transaction. If you sell your units for cash, you will recognize
taxable gain or loss in an amount equal to the difference between the amount
realized on the sale and your adjusted tax basis in your units sold. If you
exchange your units for cash and our OP Units, it will be treated, for Federal
income tax purposes, as a partial taxable sale of such units for cash and as a
partial tax-free contribution of such units to the AIMCO Operating Partnership.
If you exchange your units for cash or for cash and OP Units, the "amount
realized" will be measured by the sum of the cash you receive plus the portion
of your partnership's liabilities allocated to the units sold for Federal income
tax purposes. To the extent that the amount of cash received plus the allocable
share of your partnership's liabilities allocated to such units exceeds your tax
basis in the units sold, you will recognize gain. Consequently, the tax
liability resulting from such gain could exceed the amount of cash received upon
such sale. If you exercise your redemption right with respect to the OP Units
within two years of the date that you transfer your units to the AIMCO Operating
Partnership, your exchange of units for OP Units or OP Units and cash could be
treated as a disguised sale of your units and you would be required to recognize
gain or loss in the year of the exchange on such disguised sale. See "United
States Federal Income Tax Consequences -- Disguised Sales." Although we have no
present intention to liquidate VMS or your partnership or sell the VMS
properties or prepay the current mortgages on these properties within any
specified time period, any such action in the future generally will require you
to fully recognize any deferred taxable gain if you exchange your units for OP
Units. In addition, if the AIMCO Operating Partnership were to be treated as a
"publicly traded partnership" for Federal income tax purposes, passive activity
losses generated by other passive activity
30
investments held by you, including passive activity loss carryovers attributable
to your units, could not be used to offset your allocable share of income
generated by the AIMCO Operating Partnership. If you redeem OP Units for shares
of AIMCO Class A Common Stock you will recognize gain or loss measured by the
difference between the amount realized and your adjusted tax basis in the OP
Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no
longer be able to use income and loss from your investment to offset "passive"
income and losses from other investments, and the distributions from AIMCO will
constitute taxable income to the extent of AIMCO's earnings and profits.
The particular tax consequences of the offer to you will depend upon a
number of factors related to your individual tax situation, including your tax
basis in your units, whether you dispose of all of your units in your
partnership and whether the "passive loss" rules apply to your investments. You
should review "United States Federal Income Tax Consequences," "-- Taxation of
AIMCO and AIMCO Stockholders" and "-- Taxation of the AIMCO Operating
Partnership and OP Unitholder." Because the income tax consequences of tendering
units will not be the same for everyone, you should consult your own tax advisor
before determining whether to tender your units pursuant to our offer.
IF YOU TENDER YOUR UNITS IN THE OFFER, YOU WILL NO LONGER BE ENTITLED TO
DISTRIBUTIONS FROM YOUR PARTNERSHIP.
If you tender your units in response to our offer, you will transfer all
right, title and interest in and to all of the units that we accept, and we will
be entitled to receive all distributions in respect of such units on or after
the date on which we accept such units for purchase. Accordingly, for any units
that we acquire from you, you will not receive any future distributions from
operating cash flow of your partnership or upon a sale of property owned by VMS
or a refinancing of any of its debt. If you tender your units in exchange for OP
Units, you will be entitled to future distributions from the operating cash flow
of the AIMCO Operating Partnership and upon a dissolution, liquidation or
winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and
AIMCO OP Units -- Distributions."
WE MAY DELAY OUR ACCEPTANCE OF, AND PAYMENT FOR, YOUR UNITS.
We reserve the right to extend the period of time during which our offer is
open and thereby delay acceptance for payment of any tendered units. The offer
may be extended and no payment will be made in respect of tendered units until
the expiration of the offer and the acceptance of units for payment.
RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER
THE NATURE OF YOUR INVESTMENT IN YOUR UNITS WILL CHANGE FUNDAMENTALLY IF YOU
EXCHANGE YOUR UNITS FOR OP UNITS.
If you tender your units in exchange for our OP Units, you will have
changed fundamentally the nature of your investment from (i) a partnership that
distributes to its partners the proceeds from the sale of a property or a
refinancing of its indebtedness to (ii) a partnership that reinvests the
proceeds from sales of properties and refinancings of its indebtedness. You will
have changed from a small partnership with a partnership termination date of
December 31, 2030 to a much larger partnership with a partnership termination
date of 2093.
Under the AIMCO Operating Partnership's agreement of limited partnership,
the general partner has the ability, without the concurrence of the limited
partners, to acquire and dispose of properties and to borrow funds. Further,
while it is the intent to distribute net income from operations, sales of
properties and refinancings of indebtedness, the general partner may not make
such distributions. Proceeds of future asset sales or refinancings by the AIMCO
Operating Partnership generally will be reinvested rather than distributed.
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IF YOU EXCHANGE YOUR UNITS FOR OP UNITS, YOUR INVESTMENT WILL CHANGE FROM AN
INTEREST IN 15 PROPERTIES TO AN INTEREST IN A MUCH LARGER PORTFOLIO OF
PROPERTIES.
If you exchange your units for OP Units, you will have changed your
investment from an interest in a partnership which owns and manages 15
properties to an interest in the AIMCO Operating Partnership which is in the
business of acquiring, marketing, managing and operating a large portfolio of
apartment properties. While diversification of assets may reduce certain risks
of investment attributable to a few properties or a single entity, there can be
no assurance as to the value or performance of our securities and our portfolio
of properties as compared to the value of your units and your partnership.
IF YOU EXCHANGE YOUR UNITS FOR OP UNITS, THE VALUE OF THE OP UNITS MAY BE LESS
THAN THE CASH OFFER CONSIDERATION.
The value of the OP Units that we are offering for each of your units may
be less than our cash offer consideration. Each OP Unit is redeemable (after a
one year holding period) for one share of AIMCO's Class A common stock (or cash
equal to the market value of one share at the time of redemption). In
determining the number of OP Units we are offering for each unit in your
partnership, we divided the cash offer consideration of $3,000 by $46.63.
However, on June 7, 2002, the last reported sale price of the Class A common
stock was $46.60. If you exchange your units for OP Units and subsequently
redeem the OP Units, the value of the shares of AIMCO Class A common stock you
receive may be less than our current cash offer price.
THERE IS NO ESTABLISHED TRADING MARKET FOR OUR OP UNITS.
There is no public market for our OP Units. In addition, the AIMCO
Operating Partnership's agreement of limited partnership restricts the
transferability of OP Units. We have no plans to list the OP Units on a
securities exchange. It is unlikely that any person will make a market in the OP
Units, or that an active market for the OP Units will develop.
THE AMOUNT OF FUTURE DISTRIBUTIONS IS UNCERTAIN.
Although the AIMCO Operating Partnership makes quarterly distributions
based on its available cash, there can be no assurance regarding the amounts of
available cash that the AIMCO Operating Partnership will generate or the portion
that we will choose to distribute.
YOU MAY RECOGNIZE TAXABLE GAIN ON OP UNITS.
There are tax risks associated with the acquisition, retention and
disposition of OP Units. Although your general partner (which is our subsidiary)
has no present intention to liquidate VMS or your partnership or sell the VMS
properties or prepay the current mortgages on the properties within any
specified time period, any such action in the future generally will require you
to fully recognize any deferred taxable gain if you exchange your units for OP
Units. See "United States Federal Income Tax Consequences -- Taxation of the
AIMCO Operating Partnership and OP Unitholders." If you exercise your redemption
right with respect to the OP Units within two years of the date that you
transfer your units to the AIMCO Operating Partnership, your exchange of units
for OP Units and cash could be treated as a disguised sale of your units and you
would be required to recognize gain or loss in the year of the exchange on such
disguised sale. See "United States Federal Income Tax Consequences -- Disguised
Sales."
HOLDERS OF OP UNITS ARE LIMITED IN EFFECTING A CHANGE OF CONTROL OF THE AIMCO
OPERATING PARTNERSHIP AND AIMCO.
AIMCO's charter has restrictions on the ownership of our equity securities
in order to comply with certain REIT tax requirements. The limited partners of
the AIMCO Operating Partnership are unable to remove the general partner of the
AIMCO Operating Partnership or to vote in the election of AIMCO's
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directors unless they own shares of AIMCO. As a result, our limited partners and
stockholders are limited in their ability to effect a change of control of the
AIMCO Operating Partnership and AIMCO.
HOLDERS OF OP UNITS ARE SUBJECT TO TRANSFER RESTRICTIONS.
Investors in the AIMCO Operating Partnership must hold the OP Units for one
year, subject to exceptions. Thereafter transfers may be made subject to
applicable transfer restrictions.
HOLDERS OF OP UNITS HAVE LIMITED VOTING RIGHTS IN THE AIMCO OPERATING
PARTNERSHIP.
The AIMCO Operating Partnership is managed and operated by its general
partner. Unlike the holders of common stock in a corporation, holders of OP
Units have only limited voting rights on matters affecting the AIMCO Operating
Partnership's business. Holders of OP Units have no right to elect the general
partner on an annual or other continuing basis, and the general partner may not
be removed by holders of limited partnership interests. As a result, holders of
OP Units have limited influence on matters affecting the operation of the AIMCO
Operating Partnership and third parties may find it difficult to attempt to gain
control or influence the activities of the AIMCO Operating Partnership. Such
matters affecting the operation of the AIMCO Operating Partnership include
liquidation and distribution policies, property purchases, and potential mergers
or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting
Rights."
WE MAY BE SUBJECT TO LITIGATION AS A RESULT OF OUR ACQUISITION OF LIMITED
PARTNERSHIP INTERESTS.
We often acquire interests in limited partnerships that own apartment
properties. In some cases (such as for your partnership), we have acquired the
general partner of a partnership and then made an offer to acquire the limited
partners' interests in the partnership. There is a risk that we will be subject
to litigation based on claims that the general partner has breached its
fiduciary duties to its limited partners or that the transaction violates the
relevant partnership agreement. As a result, we may incur costs associated with
defending or settling such litigation or paying any judgment if we lose. As of
the present time, no limited partners of your partnership have initiated
lawsuits on such grounds.
HOLDERS OF OP UNITS MAY BE SUBJECT TO DILUTION.
We may issue an unlimited number of additional OP Units or other securities
for such consideration and on such terms as we may establish, without the
approval of the holders of OP Units. Such securities could have priority over
the OP Units as to cash flow, distributions and liquidation proceeds. The effect
of any such issuance may be to dilute the interests of holders of OP Units.
OP UNITHOLDERS MAY NOT HAVE LIMITED LIABILITY IN SPECIFIC CIRCUMSTANCES.
The limitations on the liability of limited partners for the obligations of
a limited partnership have not been clearly established in some states. If it
were determined that the AIMCO Operating Partnership had been conducting
business in any state without compliance with the applicable limited partnership
statute, or that the right or the exercise of the right by the OP Unitholders as
a group to make specific amendments to the agreement of limited partnership or
to take other action under the agreement of limited partnership constituted
participation in the "control" of the AIMCO Operating Partnership's business,
then an OP Unitholder could be held liable under specific circumstances for the
AIMCO Operating Partnership's obligations to the same extent as AIMCO-GP.
CONFLICTS OF INTEREST MAY ARISE BETWEEN OUR GENERAL PARTNER AND US.
Conflicts of interest have arisen and could arise in the future as a result
of the relationships between AIMCO-GP and its affiliates, on the one hand, and
the AIMCO Operating Partnership or any partner thereof, on the other. The
directors and officers of AIMCO-GP have fiduciary duties to manage AIMCO-GP in a
manner beneficial to AIMCO, as the sole stockholder of AIMCO-GP. At the same
time, AIMCO-GP, as the general partner, has fiduciary duties to manage the AIMCO
Operating Partnership in
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a manner beneficial to the AIMCO Operating Partnership and its partners. The
duties of AIMCO-GP, as general partner, to the AIMCO Operating Partnership and
its partners may therefore come into conflict with the duties of the directors
and officers of AIMCO-GP to its sole stockholder, AIMCO. Such conflicts of
interest might arise in the following situations, among others:
- Decisions of AIMCO-GP with respect to the amount and timing of cash
expenditures, borrowings, issuances of additional interests and reserves
in any quarter will affect whether or the extent to which there is
available cash to make distributions in a given quarter.
- Under the terms of its agreement of limited partnership, the AIMCO
Operating Partnership will reimburse AIMCO-GP and its affiliates for
costs incurred in managing and operating the AIMCO Operating Partnership,
including compensation of officers and employees.
- Whenever possible, AIMCO-GP seeks to limit the AIMCO Operating
Partnership's liability under contractual arrangements to all or
particular assets of the AIMCO Operating Partnership, with the other
party thereto to have no recourse against AIMCO-GP or its assets.
- Any agreements between the AIMCO Operating Partnership and AIMCO-GP and
its affiliates will not grant the OP Unitholders, separate and apart from
the AIMCO Operating Partnership, the right to enforce the obligations of
AIMCO-GP and such affiliates in favor of the AIMCO Operating Partnership.
Therefore, AIMCO-GP, in its capacity as the general partner of the AIMCO
Operating Partnership, will be primarily responsible for enforcing such
obligations.
- Under the terms of the AIMCO Operating Partnership's agreement of limited
partnership, AIMCO-GP is not restricted from causing the AIMCO Operating
Partnership to pay AIMCO-GP or its affiliates for any services rendered
on terms that are fair and reasonable to the AIMCO Operating Partnership
or entering into additional contractual arrangements with any of such
entities on behalf of the AIMCO Operating Partnership. Neither the
agreement of limited partnership nor any of the other agreements,
contracts and arrangements between the AIMCO Operating Partnership, on
the one hand, and AIMCO-GP and its affiliates, on the other, are or will
be the result of arms-length negotiations.
Unless otherwise provided for in the relevant partnership agreement,
Delaware law generally requires a general partner of a Delaware limited
partnership to adhere to fiduciary duty standards under which it owes its
limited partners the highest duties of good faith, fairness and loyalty and
which generally prohibit such general partner from taking any action or engaging
in any transaction as to which it has a conflict of interest. The AIMCO
Operating Partnership's agreement of limited partnership expressly authorizes
AIMCO-GP to enter into, on behalf of the AIMCO Operating Partnership, a right of
first opportunity arrangement and other conflict avoidance agreements with
various affiliates of the AIMCO Operating Partnership and AIMCO-GP, on such
terms as AIMCO-GP, in its sole and absolute discretion, believes are advisable.
The latitude given in the agreement of limited partnership to AIMCO-GP in
resolving conflicts of interest may significantly limit the ability of an OP
Unitholder to challenge what might otherwise be a breach of fiduciary duty. The
General Partner believes, however, that such latitude is necessary and
appropriate to enable it to serve as the general partner of the AIMCO Operating
Partnership without undue risk of liability.
The AIMCO Operating Partnership's agreement of limited partnership
expressly limits the liability of AIMCO-GP by providing that AIMCO-GP, and its
officers and directors will not be liable or accountable in damages to the AIMCO
Operating Partnership, the limited partners or assignees for errors in judgment
or mistakes of fact or law or of any act or omission if AIMCO-GP or such
director or officer acted in good faith. In addition, the AIMCO Operating
Partnership is required to indemnify AIMCO-GP, its affiliates and their
respective officers, directors, employees and agents to the fullest extent
permitted by applicable law, against any and all losses, claims, damages,
liabilities, joint or several, expenses, judgments, fines and other actions
incurred by AIMCO-GP or such other persons, provided that the AIMCO Operating
Partnership will not indemnify for willful misconduct or a knowing violation of
the law or for
34
any transaction for which such person received an improper personal benefit in
violation or breach of any provision of the partnership agreement.
The provisions of Delaware law that allow the common law fiduciary duties
of a general partner to be modified by a partnership agreement have not been
resolved in a court of law, and AIMCO-GP has not obtained an opinion of counsel
covering the provisions set forth in the AIMCO Operating Partnership's agreement
of limited partnership that purport to waive or restrict the fiduciary duties of
AIMCO-GP that would be in effect under common law were it not for the agreement
of limited partnership.
TAX RISKS ASSOCIATED WITH AN INVESTMENT IN THE OP UNITS.
For a general discussion of certain United States Federal income tax
consequences resulting from the acquisition, holding, exchanging, and otherwise
disposing of OP Units, see "United States Federal Income Tax
Consequences -- Taxation of the AIMCO Operating Partnership and OP Unitholders."
TAX TREATMENT IS DEPENDENT ON PARTNERSHIP STATUS; PUBLICLY TRADED PARTNERSHIP
RISKS.
An investment in the AIMCO Operating Partnership depends on the
classification of the AIMCO Operating Partnership as a partnership for United
States Federal income tax purposes. No advance ruling has been or will be sought
from the IRS as to the classification of the AIMCO Operating Partnership as a
partnership. No assurance can be given that the IRS will not challenge the
status of the AIMCO Operating Partnership as a partnership.
If a market for the OP Units develops and the OP Units are considered
"readily tradable" on a "secondary market (or the substantial equivalent
thereof)," the AIMCO Operating Partnership would be classified as a publicly
traded partnership for United States Federal income tax purposes. We believe and
currently intend to take the position that the AIMCO Operating Partnership
should not be classified as a publicly traded partnership because (i) our OP
Units are not traded on an established securities market and (ii) we believe our
OP Units should not be considered readily tradable on a secondary market or the
substantial equivalent thereof. The determination of whether interests in a
partnership are readily tradable on a secondary market or the substantial
equivalent thereof, however, depends on various facts and circumstances
(including facts that are not within the control of the AIMCO Operating
Partnership). Although regulations promulgated by the U.S. Treasury Department
under the Internal Revenue Code and an IRS pronouncement provide limited safe
harbors, which, if satisfied, will prevent a partnership's interests from being
treated as readily tradable on a secondary market or the substantial equivalent
thereof, the AIMCO Operating Partnership may not have satisfied these safe
harbors in its previous tax years. In addition, because the AIMCO Operating
Partnership's ability to satisfy a safe harbor may involve facts that are not
within its control, it is not possible to predict whether the AIMCO Operating
Partnership will satisfy a safe harbor in future tax years. Such safe harbors
are not intended to be substantive rules for the determination of whether
partnership interests are readily tradable on a secondary market or the
substantial equivalent thereof, and consequently, the failure to meet these safe
harbors will not necessarily cause the AIMCO Operating Partnership to be treated
as a publicly traded partnership. No assurance can be given, however, that the
IRS will not assert that partnerships such as the AIMCO Operating Partnership
constitute publicly traded partnerships, or that facts and circumstances will
not develop which could result in the AIMCO Operating Partnership being treated
as a publicly traded partnership.
If the AIMCO Operating Partnership was classified as a publicly traded
partnership, it would nevertheless not be taxable as a corporation as long as
90% or more of its gross income consists of "qualifying income." In general,
qualifying income includes interest, dividends, real property rents (as defined
by section 856 of the Internal Revenue Code) and gain from the sale or
disposition of real property. We believe that more than 90% of the gross income
of the AIMCO Operating Partnership consists of qualifying income and we expect
that more than 90% of its gross income in future tax years will consist of
qualifying income. As such, even if the AIMCO Operating Partnership were
characterized as a publicly traded partnership, it would not be taxable as a
corporation. If the AIMCO Operating Partnership were characterized as a publicly
traded partnership, however, each OP Unitholder would be subject to
35
special rules under section 469 of the Internal Revenue Code. No assurance can
be given that the actual results of the AIMCO Operating Partnership's operations
for any one taxable year will enable it to satisfy the qualifying income
exception.
If the AIMCO Operating Partnership was classified as an association or
publicly traded partnership taxable as a corporation (because it did not meet
the qualifying income exception discussed above), it would be subject to tax at
the entity level as a regular corporation and OP Unitholders would be subject to
tax in the same manner as stockholders of a corporation. The classification of
the AIMCO Operating Partnership as an association or publicly traded partnership
taxable as a corporation could also result in a substantial tax liability to OP
Unitholders. In addition, the AIMCO Operating Partnership would be subject to
United States Federal income tax (and possibly additional state and local taxes)
on its net income, determined without reduction for any distributions made to OP
Unitholders, at regular United States Federal corporate income tax rates,
thereby reducing the amount of any cash available for distribution to OP
Unitholders, which reduction could also materially and adversely impact the
liquidity and value of the OP Units. In addition, the AIMCO Operating
Partnership's items of income, gain, loss, deduction and expense would not be
passed through to OP Unitholders and OP Unitholders would not be subject to tax
on the income earned by the AIMCO Operating Partnership. Distributions received
by an OP Unitholder from the AIMCO Operating Partnership, however, would be
treated as dividend income for United States Federal income tax purposes,
subject to tax as ordinary income to the extent of current and accumulated
earnings and profits of the AIMCO Operating Partnership, and the excess, if any,
as a nontaxable return of capital to the extent of the OP Unitholder's adjusted
tax basis in his AIMCO Operating Partnership interest (without taking into
account partnership liabilities), and thereafter as gain from the sale of a
capital asset. Classification of the AIMCO Operating Partnership as an
association or publicly traded partnership taxable as a corporation would mean
that AIMCO would not qualify as a REIT for United States Federal income tax
purposes, which would have a material adverse impact on AIMCO. No assurances can
be given that the IRS would not challenge the status of the AIMCO Operating
Partnership as a "partnership" which is not "publicly traded" for United States
Federal income tax purposes or that a court would not reach a result contrary to
such positions. Accordingly, each prospective investor is urged to consult his
tax advisor regarding the classification and treatment of the AIMCO Operating
Partnership as a "partnership" for United States Federal income tax purposes.
THERE MAY BE ADVERSE TAX CONSEQUENCES IN EXCHANGING PROPERTY FOR OP UNITS.
In general, no gain or loss will be recognized for United States Federal
income tax purposes by a person (the "Contributing Partner") contributing
property to the AIMCO Operating Partnership in exchange for OP Units, and the
Contributing Partner will take a tax basis in the OP Unit received equal to his
adjusted tax basis in the contributed property. Notwithstanding this general
rule of nonrecognition, a Contributing Partner may recognize a gain where the
property transferred is subject to liabilities, or the AIMCO Operating
Partnership assumes liabilities in connection with the transfer of property, and
the amount of such liabilities exceeds the amount of the AIMCO Operating
Partnership liabilities allocated to such person as determined immediately after
the transfer. Such excess is generally treated as a deemed distribution of cash
to the Contributing Partner from the AIMCO Operating Partnership which, in turn,
is treated as a nontaxable return of capital to the extent of the Contributing
Partner's adjusted tax basis in his OP Unit and thereafter as gain. If the
Contributing Partner transfers property to the AIMCO Operating Partnership and
the adjusted tax basis of the property differs from its fair market value, then
AIMCO Operating Partnership tax items must be allocated, for United States
Federal income tax purposes, in a manner such that the Contributing Partner is
charged with the unrealized gain, or benefits from the unrealized loss,
associated with the property at the time of the contribution.
There are a variety of transactions that the AIMCO Operating Partnership
may in its sole discretion undertake following such contribution with respect to
the contributed property or the debt securing such property which could cause
the Contributing Partner to recognize taxable gain, even though little or no
cash is distributable to him as a result thereof. Such transactions include but
are not limited to (i) the sale of a particular property, which could result in
an allocation of gain only to those holders of OP Units
36
who received OP Units for such property (even if cash attributable to sale
proceeds where distributed proportionately to all holders of OP Units); and (ii)
a reduction in the nonrecourse debt allocable to property (either because such
debt becomes a recourse liability or is paid off with cash flow, new equity, or
proceeds of debt secured by other property of the AIMCO Operating Partnership),
which would result in a deemed distribution of money to the holders of OP Units
who received OP Units for such property as well as to the other holders of OP
Units. Our partnership agreement grants AIMCO-GP broad authority to undertake
such transactions and does not grant the holders of OP Units affected by these
actions any rights to prevent AIMCO-GP from taking such actions. Even if
AIMCO-GP does not intend to sell or otherwise dispose of contributed property or
to reduce the debt, if any, securing such property within any specified time
period after the Contributing Partner transfers such property to the AIMCO
Operating Partnership, it is possible that future economic, market, legal, tax
or other considerations may cause the AIMCO Operating Partnership to dispose of
the contributed property or to reduce its debt. In this regard, the partnership
agreement provides that AIMCO-GP, while acting in its capacity as general
partner of the AIMCO Operating Partnership, may, but is not required to, take
into account the tax consequences to the holders of OP Units of its actions in
such capacity. AIMCO-GP intends to make decisions in its capacity as general
partner of the AIMCO Operating Partnership so as to maximize the profitability
of the AIMCO Operating Partnership as a whole, independent of the tax effects on
individual holders of OP Units.
For United States Federal income tax purposes, the receipt or deemed
receipt of cash or other consideration in addition to OP Units upon the
contribution of property to the AIMCO Operating Partnership may be treated as a
sale of the property under the "disguised sale rules." The disguised sale rules
may also apply where property is transferred to the AIMCO Operating Partnership
subject to certain liabilities. If the disguised sale rules apply, all or a
portion of such liabilities may be treated as consideration received by the
Contributing Partner in a sale of the property to the AIMCO Operating
Partnership. For a discussion of the disguised sale rules, see "United States
Federal Income Tax Consequences -- Taxation of the AIMCO Operating Partnership
and OP Unitholders -- Disguised Sales."
TAX GAIN OR LOSS WILL BE RECOGNIZED ON A DISPOSITION OF OP UNITS.
An OP Unitholder who sells OP Units will recognize gain or loss equal to
the difference between the amount realized (including his share of AIMCO
Operating Partnership liabilities) and his adjusted tax basis in such OP Units.
Thus, prior AIMCO Operating Partnership distributions in excess of cumulative
net taxable income in respect of an OP Unit which decreased an OP Unitholder's
tax basis in such OP Unit will, in effect, become taxable income if the OP Unit
is sold at a price greater than the OP Unitholder's tax basis in such OP Units,
even if the price is less than his original cost. A portion of the amount
realized (whether or not representing gain) may be ordinary income.
TAX LIABILITY MAY EXCEED CASH DISTRIBUTIONS.
An OP Unitholder will be required to pay United States Federal income tax
on his allocable share of the AIMCO Operating Partnership's income, even if he
receives no cash distributions from the AIMCO Operating Partnership. No
assurance can be given that an OP Unitholder will receive cash distributions
equal to his allocable share of taxable income from the AIMCO Operating
Partnership or even the tax liability to him resulting from that income.
Further, upon the sale of his OP Units, an OP Unitholder may incur a tax
liability in excess of the amount of cash received.
DEDUCTIBILITY OF LOSSES MAY BE LIMITED.
An OP Unitholder's ability to use his allocable share of losses, if any,
from the AIMCO Operating Partnership at the end of the taxable year in which the
loss is incurred may be limited by specific provisions of the Internal Revenue
Code.
37
OP UNITHOLDERS MAY BE SUBJECT TO A TAX AUDIT.
The AIMCO Operating Partnership's tax return may be audited, and any such
audit could result in an audit of an OP Unitholder's tax return as well as
increased liabilities for taxes because of adjustments resulting from the audit.
No assurance can be given that the AIMCO Operating Partnership will not be
audited by the IRS or various state authorities or that tax adjustments will not
be made. Any adjustments in the AIMCO Operating Partnership's tax return will
lead to adjustments in an OP Unitholder's tax return and may lead to audits of
an OP Unitholder's tax return and adjustments of items unrelated to the AIMCO
Operating Partnership. Each OP Unitholder would bear the cost of any expenses
incurred in connection with an examination of such OP Unitholder's tax return.
OP UNITHOLDERS MAY BE SUBJECT TO STATE, LOCAL AND FOREIGN TAXATION.
In addition to United States Federal income taxes, the AIMCO Operating
Partnership and its OP Unitholders may be subject to state, local and foreign
taxation, and may be required to file tax returns, in various jurisdictions in
which the AIMCO Operating Partnership does business, owns property or resides.
Each prospective investor is urged to consult his tax advisor in this regard.
RISKS ASSOCIATED WITH INVESTING IN AIMCO
IF WE ARE NOT ABLE TO SUCCESSFULLY ACQUIRE, REDEVELOP AND EXPAND APARTMENT
PROPERTIES, OUR RESULTS OF OPERATIONS WILL BE ADVERSELY AFFECTED.
The selective acquisition, development and expansion of apartment
properties are one component of our growth strategy may not be able to
successfully complete transactions in the future. Although we seek to acquire,
develop and expand properties only when such activities increase our net income
on a per share basis, such transactions may fail to perform in accordance with
our expectations. When we develop or expand properties, we are subject to the
risks that:
- costs may exceed original estimates;
- future occupancy and rental rates at the property may be below our
projections;
- financing may not be available on favorable terms or at all;
- redevelopment and leasing of the properties may not be completed on
schedule; and
- we may experience difficulty or delays in obtaining necessary zoning,
land-use, building, occupancy and other governmental permits and
authorizations.
We May Have Difficulty Integrating Any Acquired Business or Property. We
have grown rapidly. Since our initial public offering in July 1994, we have
completed numerous acquisition transactions, expanding our portfolio of owned or
managed properties from 132 apartment properties with 29,343 units to 1,887
apartment properties with 333,496 units as of March 31, 2002. These acquisitions
have included purchases of properties and interests in entities that own or
manage properties, as well as corporate mergers. Our ability to successfully
integrate acquired businesses and properties depends, among other things, on our
ability to:
- attract and retain qualified personnel;
- integrate the personnel and operations of the acquired businesses;
- maintain uniform standards, controls, procedures and policies; and
- maintain adequate accounting and information systems.
We can provide no assurance that we will be able to accomplish these goals
and successfully integrate any acquired businesses or properties. If we fail to
successfully integrate such businesses, our results of operations could be
adversely affected.
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As Our Size Increases, It Becomes More Difficult for Us to Achieve Rapid
Growth. Our rapid growth since our initial public offering in July 1994 was
achieved when we were a smaller company. As a result of our current size, future
acquisitions of the same size and magnitude will have a smaller impact on us. It
is also more difficult for us to identify and complete acquisitions of greater
size that are consistent with our growth strategy.
We Are Subject to Litigation Associated With Partnership Acquisitions Which
Could Increase Our Expenses and Prevent Completion of Beneficial
Transactions. We have engaged in, and intend to continue to engage in, the
selective acquisition of interests in limited partnerships that own apartment
properties. In some cases, we have acquired the general partner of a partnership
and then made an offer to acquire the limited partners' interests in the
partnership. In these transactions, we are subject to litigation based on claims
that the general partner has breached its fiduciary duties to its limited
partners or that the transaction violates the relevant partnership agreement.
Although we intend to comply with our fiduciary obligations and relevant
partnership agreements, we may incur additional costs in connection with the
defense or settlement of such litigation. In some cases, this type of litigation
may adversely affect our desire to proceed with, or our ability to complete, a
particular transaction. Any litigation of this type could also have a material
adverse effect on our results of operations.
OUR CURRENT AND FUTURE DEBT FINANCING COULD RENDER US UNABLE TO OPERATE AND
RESULT IN FORECLOSURE ON OUR PROPERTIES OR PREVENT US FROM MAKING DISTRIBUTIONS
ON OUR EQUITY.
Our strategy is generally to incur debt to increase the return on our
equity while maintaining acceptable interest coverage ratios. We seek to
maintain a ratio of free cash flow to combined interest expense and preferred
stock dividends of between 2:1 and 3:1. However, our board of directors could
change this strategy at any time and increase our leverage. Our organizational
documents do not limit the amount of debt that we may incur, and we have
significant amounts of debt outstanding. Payments of principal and interest may
leave us with insufficient cash resources to operate our properties or pay
distributions required to be paid in order to maintain our qualification as a
REIT. We are also subject to the risk that our cash flow from operations will be
insufficient to make required payments of principal and interest, and the risk
that existing indebtedness may not be refinanced or that the terms of any
refinancing will not be as favorable as the terms of existing indebtedness. If
we fail to make required payments of principal and interest on any debt, our
lenders could foreclose on the properties securing such debt with a consequent
loss of income and asset value to us. As of December 31, 2001, substantially all
of the properties that we own or control were encumbered by debt. As of December
31, 2001, we had approximately $4.8 billion of indebtedness outstanding on a
consolidated basis, all of which was secured.
INCREASES IN INTEREST RATES MAY INCREASE OUR INTEREST EXPENSE.
As of December 31, 2001, approximately $925.1 million (19% of the total) of
our debt was subject to variable interest rates. An increase in interest rates
could increase our interest expense and reduce our cash flow and our ability to
service our indebtedness and make distributions.
WE MAY INCUR LOSSES DUE TO INTEREST RATE HEDGING TRANSACTIONS.
From time to time, in anticipation of refinancing debt, we enter into
agreements to reduce the risks associated with increases in short term interest
rates. Although these agreements provide us with some protection against rising
interest rates, these agreements also reduce the benefits to us when interest
rates decline. These agreements involve the following risks:
- interest rate movements during the term of the agreement may result in a
loss to us;
- we may be exposed to losses if the hedge is not indexed to the same rate
as the debt anticipated to be incurred; and
- we may incur a loss if the counterparty to the agreement fails to pay.
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COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO MAKE PAYMENTS TO OUR INVESTORS.
Some of our debt and other securities contain covenants that restrict our
ability to make distributions or other payments to our investors unless certain
financial tests or other criteria are satisfied. In some cases, our subsidiaries
are subject to similar provisions, which may restrict their ability to make
distributions to us. Our credit facilities provide that we may make
distributions to our investors during any 12-month period in an aggregate amount
that does not exceed the greater of 80% of our funds from operations for such
period or such amount as may be necessary to maintain our REIT status. The
credit facilities prohibit all distributions if our:
- fixed charge coverage ratio is less than 1.70 to 1;
- adjusted fixed charge coverage ratio (includes scheduled amortization) is
less than 1.45 to 1;
- interest coverage ratio is less than 2.25 to 1;
- unsecured debt service coverage ratio is less than 3.00 to 1;
- total combined debt to gross asset value ratio exceeds 0.55 to 1;
- total obligations to gross asset value ratio exceeds 0.68 to 1 before
September 30, 2002, or 0.65 to 1 thereafter;
- encumbered property debt coverage ratio is less than 1.60 to 1; or
- consolidated net worth is less than the sum of $2.68 billion and 85% of
the net proceeds of any securities issuances after June 30, 2001.
Our outstanding classes of preferred stock and preferred partnership units
prohibit the payment of dividends on our common stock or common partnership
units if we fail to pay the dividends or distributions to which the holders of
the preferred stock or partnership preferred units are entitled. In addition,
our 6 1/2% convertible debentures prohibit the payment of dividends on our
capital stock if we elect to defer payments of interest on these convertible
debentures, which we may have the right to do for periods of up to 60 months. If
we are unable to pay dividends, we may fail to qualify as a REIT. This would
subject us to corporate taxation and reduce our ability to make distributions to
you.
WE DEPEND ON DISTRIBUTIONS AND OTHER PAYMENTS FROM OUR SUBSIDIARIES THAT THEY
MAY BE PROHIBITED FROM MAKING TO US.
All of our properties are owned, and all of our operations are conducted,
by the AIMCO Operating Partnership and our other subsidiaries. As a result, we
depend on distributions and other payments from the subsidiaries in order to
satisfy our financial obligations and make payments to our investors. The
ability of the subsidiaries to make such distributions and other payments is
dependent upon their earnings and may be subject to statutory or contractual
limitations. As an equity investor in the subsidiaries, our right to receive
assets upon their liquidation or reorganization will be effectively subordinated
to the claims of their creditors. To the extent that we are recognized as a
creditor of such subsidiaries, our claims would still be subordinate to any
security interest in or other lien on their assets and to any of their debt or
other obligations that are senior to us.
CHANGES IN THE REAL ESTATE MARKET MAY LIMIT OUR ABILITY TO GENERATE FUNDS FROM
OPERATIONS.
Our ability to make payments to our investors depends on our ability to
generate funds from operations in excess of required debt payments and capital
expenditure requirements. Funds from operations and the value of our properties
may be adversely affected by events or conditions beyond our control. Such
events or conditions could include:
- the general economic climate;
- competition from other apartment communities and alternative housing;
40
- local conditions, such as an increase in unemployment or an oversupply of
apartments, that might adversely affect apartment occupancy or rental
rates;
- changes in governmental regulations and the related cost of compliance;
- increases in operating costs (including real estate taxes) due to
inflation and other factors, which may not necessarily be offset by
increased rents;
- changes in tax laws and housing laws, including the enactment of rent
control laws or other laws regulating multifamily housing;
- changes in interest rate levels and the availability of financing; and
- the relative illiquidity of real estate investments.
WE MAY BE SUBJECT TO COSTLY ENVIRONMENTAL LIABILITIES, WHICH COULD ADVERSELY
AFFECT OUR RESULTS OF OPERATIONS.
Various Federal, state and local laws subject property owners or operators
to liability for the costs of removal or remediation of certain hazardous
substances released on a property. These laws often impose liability without
regard to whether the owner or operator knew of, or was responsible for, the
release of the hazardous substances. The presence of, or the failure to properly
remediate, hazardous substances may adversely affect occupancy at contaminated
apartment communities and our ability to sell or borrow against contaminated
properties. In addition to the costs associated with investigation and
remediation actions brought by governmental agencies, the presence of hazardous
wastes on a property could result in personal injury or similar claims by
private plaintiffs. Various laws also impose liability for the cost of removal
or remediation of hazardous or toxic substances at the disposal or treatment
facility. Anyone who arranges for the disposal or treatment of hazardous or
toxic substances is potentially liable under these laws. These laws often impose
liability whether or not the person arranging for the disposal ever owned or
operated the disposal facility.
LAWS BENEFITING DISABLED PERSONS MAY RESULT IN OUR INCURRENCE OF UNANTICIPATED
EXPENSES.
Under the Americans with Disabilities Act of 1990, or ADA, all places of
public accommodation are required to meet certain Federal requirements related
to access and use by disabled persons. Likewise, the Fair Housing Amendments Act
of 1988, or FHAA, requires apartment properties first occupied after March 13,
1990 to be accessible to the handicapped. These and other Federal, state and
local laws may also require modifications to our properties, or restrict certain
further renovations of the properties. Noncompliance with these laws could
result in the imposition of fines or an award of damages to private litigants
and also could result in an order to correct any non-complying feature, which
could result in substantial capital expenditures. Although we believe that our
properties are substantially in compliance with present requirements, we may
incur unanticipated expenses to comply with the ADA and the FHAA.
AFFORDABLE HOUSING REGULATIONS MAY LIMIT RENT INCREASES AT SOME OF OUR
PROPERTIES, REDUCING OUR REVENUE, AND, IN SOME CASES, CAUSING US TO SELL
PROPERTIES THAT WE MIGHT OTHERWISE CONTINUE TO OWN.
As of December 31, 2001, we owned or controlled 28 properties, held an
equity interest in 353 properties with a combined average ownership percentage
of 25% and managed for third parties and affiliates 112 properties that benefit
from governmental programs intended to provide housing to people with low or
moderate incomes. These programs, which are usually administered by the United
States Department of Housing and Urban Development, or HUD, or state housing
finance agencies, typically provide mortgage insurance, favorable financing
terms or rental assistance payments to the property owners. As a condition to
the receipt of assistance under these programs, the properties must comply with
various requirements, which typically limit rents to pre-approved amounts. If
permitted rents on a property are insufficient to cover costs, a sale of the
property may become necessary, which could result in a loss of management fee
revenue. We usually need to obtain the approval of HUD in order to manage, or
acquire
41
a significant interest in, a HUD-assisted property. We can make no assurance
that we will always receive such approval.
THE LOSS OF PROPERTY MANAGEMENT CONTRACTS MAY REDUCE OUR REVENUES.
We manage some properties owned by third parties. In 2001, we received
$17.3 million of revenue from the management of such properties. We may suffer a
loss of revenue if we lose our right to manage these properties or if the rental
revenues upon which our management fees are based decline. In general,
management contracts may be terminated or otherwise lost as a result of:
- a disposition of the property by the owner in the ordinary course or as a
result of financial distress of the property owner;
- the property owner's determination that our management of the property is
unsatisfactory;
- willful misconduct, gross negligence or other conduct that constitutes
grounds for termination; or
- with respect to certain affordable properties, termination of such
contracts by HUD or state housing finance agencies, generally at their
discretion.
WE DEPEND ON OUR CHIEF EXECUTIVE OFFICER AND OUR PRESIDENT; OUR OPERATIONS
WOULD BE HARMED IF WE LOST THEIR SERVICES.
Although we have entered into employment agreements with our Chairman and
Chief Executive Officer, Terry Considine, and our Vice Chairman and President,
Peter K. Kompaniez, the loss of any of their services could have an adverse
effect on our operations.
AS A REIT, AIMCO IS SUBJECT TO SUBSTANTIAL RISKS RELATED TO ITS COMPLIANCE
WITH THE TAX LAWS.
AIMCO May Fail to Qualify As a REIT. AIMCO believes that it operates in a
manner that enables it to meet the requirements for qualification as a REIT for
Federal income tax purposes; however, future economic, market, legal, tax or
other considerations may cause it to fail to qualify as a REIT, or its board of
directors may determine to revoke its REIT status. If AIMCO fails to qualify, or
revokes its status, as a REIT, AIMCO will not be allowed a deduction for
dividends paid to its stockholders in computing its taxable income, and AIMCO
will be subject to Federal income tax at regular corporate rates. This would
substantially reduce the funds available for payment to AIMCO's investors. See
"United States Federal Income Tax Consequences -- Taxation of AIMCO and AIMCO
Stockholders" for more detail.
In addition, the failure of AIMCO to qualify as a REIT would trigger the
following consequences:
- AIMCO would be obligated to repurchase a material amount of its preferred
stock, plus accrued and unpaid dividends to the date of repurchase; and
- AIMCO would be in default under its primary credit facility and certain
other loan agreements.
REIT Distribution Requirements Limit AIMCO's Available Cash. As a REIT,
AIMCO is subject to annual distribution requirements, which limit the amount of
cash it has available for other business purposes, including amounts to fund its
growth.
Legislative or Other Actions Affecting REITs Could Have a Negative Impact
on AIMCO. The rules dealing with Federal income taxation are constantly under
review by persons involved in the legislative process and by the Internal
Revenue Service, or IRS, and the U.S. Treasury Department. Changes to the tax
laws (which may have retroactive application) could adversely affect AIMCO
investors. AIMCO cannot predict how changes in the tax law might affect it or
its investors. For example, under recently enacted legislation, effective
January 1, 2001, if any of AIMCO's management companies were deemed to operate
or manage a health care or lodging facility, AIMCO would fail to qualify as a
REIT. While AIMCO believes that, since January 1, 2001, none of AIMCO's
management companies have operated or managed any health care or lodging
facilities, the statute provides little guidance as to the definition of a
health care or lodging facility. Accordingly, AIMCO cannot assure you that the
IRS will not contend that
42
any of AIMCO's management companies operate or manage a health care or lodging
facility, resulting in AIMCO's disqualification as a REIT.
AIMCO May Be Subject to Other Tax Liabilities. Even if AIMCO qualifies as
a REIT, AIMCO and its subsidiaries may be subject to certain Federal, state and
local taxes on its income and property. Any such taxes would reduce AIMCO's
operating cash flow.
LIMITS ON OWNERSHIP OF AIMCO SHARES IN AIMCO'S CHARTER MAY RESULT IN THE LOSS
OF ECONOMIC AND VOTING RIGHTS BY PURCHASERS THAT VIOLATE SHARE LIMITS.
AIMCO's charter limits ownership of its common stock by any single
stockholder to 8.7% of the outstanding shares, or 15% in the case of certain
pension trusts, registered investment companies and Mr. Considine. The charter
also limits ownership of AIMCO's common stock and preferred stock by any single
stockholder to 8.7% of the value of the outstanding common stock and preferred
stock, or 15% in the case of certain pension trusts, registered investment
companies and Mr. Considine. The charter also prohibits anyone from buying
shares if the purchase would result in AIMCO losing its REIT status. This could
happen if a share transaction results in fewer than 100 persons owning all of
AIMCO's shares or results in five or fewer persons, applying certain attribution
rules of the Internal Revenue Code, owning 50% or more of the value of all of
AIMCO's shares. If you or anyone else acquires shares in excess of the ownership
limit or in violation of the ownership requirements of the Internal Revenue Code
for REITs:
- the transfer will be considered null and void;
- AIMCO will not reflect the transaction on its books;
- AIMCO may institute legal action to enjoin the transaction;
- AIMCO may demand repayment of any dividends received by the affected
person on those shares;
- AIMCO may redeem the shares;
- the affected person will not have any voting rights for those shares; and
- the shares (and all voting and dividend rights of the shares) will be
held in trust for the benefit of one or more charitable organizations
designated by us.
AIMCO may purchase the shares held in trust at a price equal to the lesser
of the price paid by the transferee of the shares or the then current market
price. If the trust transfers any of the shares, the affected person will
receive the lesser of the price he paid for the shares or the then current
market price. An individual who acquires shares that violate the above rules
bears the risk that the individual:
- may lose control over the power to dispose of such shares;
- may not recognize profit from the sale of such shares if the market price
of the shares increases;
- may be required to recognize a loss from the sale of such shares if the
market price decreases; and
- may be required to repay AIMCO any distributions received from AIMCO as a
result of his ownership of such shares.
AIMCO'S CHARTER AND MARYLAND LAW MAY LIMIT THE ABILITY OF A THIRD PARTY TO
ACQUIRE CONTROL OF AIMCO.
Ownership Limit. The 8.7% ownership limit discussed above may have the
effect of precluding acquisition of control of AIMCO by a third party without
the consent of AIMCO's board of directors.
Preferred Stock. AIMCO's charter authorizes its board of directors to
issue up to 510,587,500 shares of capital stock. As of December 31, 2001,
456,962,738 shares were classified as Class A Common Stock, and 53,624,762
shares were classified as preferred stock. Under the charter, the board of
directors has the authority to classify and reclassify any of AIMCO's unissued
shares of capital stock into shares of preferred stock with such preferences,
rights, powers and restrictions as the board of directors may
43
determine. The authorization and issuance of preferred stock could have the
effect of delaying or preventing someone from taking control of AIMCO, even if a
change in control were in stockholders' best interests.
Maryland Business Statutes. As a Maryland corporation, AIMCO is subject to
various Maryland laws which may have the effect of discouraging offers to
acquire AIMCO and of increasing the difficulty of consummating any such offers,
even if AIMCO's acquisition would be in its stockholders' best interests. The
Maryland General Corporation Law restricts mergers and other business
combination transactions between AIMCO and any person who acquires beneficial
ownership of shares of AIMCO's stock representing 10% or more of the voting
power without AIMCO's board of directors' prior approval. Any such business
combination transaction could not be completed until five years after the person
acquired such voting power, and generally only with the approval of stockholders
representing 80% of all votes entitled to be cast and two-thirds of the votes
entitled to be cast, excluding the interested stockholder, or upon payment of a
fair price. Maryland law also provides that a person who acquires shares of
AIMCO stock that represent 10% or more of the voting power in electing directors
will have no voting rights unless approved by a vote of two-thirds of the shares
eligible to vote, excluding the control shares. Maryland law provides, among
other things, that the board of directors has broad discretion in adopting
stockholders' rights plans and has the sole power to fix the record date, time
and place for special meetings of the stockholders. In addition, Maryland law
provides that corporations which:
- have three directors who are not employees of the entity or related to an
acquiring person; and
- are subject to the reporting requirements of the Securities Exchange Act
of 1934,
may elect in their charter or bylaws or by resolution of the board of directors
to be subject to all or part of a special subtitle which provides that:
- the corporation will have a staggered board of directors;
- any director may be removed only for cause, and by the vote of two-thirds
of the votes entitled to be cast in the election of directors generally
even if a lesser proportion is provided in the charter or bylaws;
- the number of directors may only be set by the board of directors, even
if the procedure is contrary to the charter or bylaws;
- vacancies may only be filled by the remaining directors, even if the
procedure is contrary to the charter or bylaws; and
- the secretary of the corporation may call a special meeting of
stockholders at the request of stockholders only on the written request
of the stockholders entitled to cast at least a majority of all the votes
entitled to be cast at the meeting, even if the procedure is contrary to
the charter or bylaws.
RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER
VMS HAS SIGNIFICANT BALLOON PAYMENTS DUE ON ITS MORTGAGE DEBT.
VMS has approximately $93,243,000 of balloon payments due on its senior
mortgage debt in 2008 and $28,250,000 due on its junior mortgage debt in 2008.
If VMS cannot refinance or repay its indebtedness in 2008, VMS will be required
to sell its properties and liquidate under the VMS plan of reorganization.
RECOGNITION OF INCOME BECAUSE OF THE DECLINING AMOUNT OF DEPRECIATION
DEDUCTIONS FROM THE VMS PROPERTIES WITHOUT ANY CORRESPONDING DISTRIBUTIONS.
As a limited partner, you are likely to continue to receive allocations of
taxable income from your partnership without any corresponding distributions.
Unless you have losses from passive investments (including VMS) or other tax
attributes to offset such taxable income, you may be required to pay taxes in
respect of such income without any corresponding receipt of cash. We currently
estimate, based on
44
certain projections, that partners in your partnership will receive taxable
income of approximately $120,010 for 2002, $996,611 for 2003, $1,123,893 for
2004, $1,232,876 for 2005, $1,328,159 for 2006, $1,411,870 for 2007 and
$1,474,653 for 2008. The foregoing are merely estimates, and there can be no
assurance that such estimates will prove accurate in the future. This situation
has arisen primarily because of the declining amount of depreciation deductions
from the properties in which your partnership has invested through VMS. All of
the cash flow is currently dedicated to the payment of operating expenses,
capital expenditures and debt service. Accordingly, we estimate that over the
next seven years, the owner of one limited partnership unit will realize
approximately $29,498 in taxable income from your partnership without any cash
distributions to pay the tax due thereon.
IF WE ACQUIRE A SUBSTANTIAL NUMBER OF UNITS IN THE OFFER, WE COULD CONTROL
YOUR PARTNERSHIP.
Because your general partner is a subsidiary of AIMCO, we control the
management of your partnership. In addition, if we acquire more units, we will
increase our ability to influence voting decisions with respect to your
partnership. However, we will not be able to control voting decisions unless we
acquire more units in another transaction. Furthermore, in the event that we
acquire a substantial number of units pursuant to our offer, removal of your
general partner (which is our subsidiary) or the manager of any property owned
by VMS may become more difficult or impossible without our consent.
YOU COULD RECOGNIZE GAIN IN THE EVENT OF A REDUCTION IN YOUR PARTNERSHIP'S
LIABILITIES.
Generally, a decrease in your share of your partnership's liabilities is
treated, for Federal income tax purposes, as a deemed cash distribution.
Although your general partner (which is our subsidiary) has no current plan or
intention to reduce the liabilities of your partnership, it is possible that
future economic, market, legal, tax or other considerations may cause your
general partner to reduce the liabilities of your partnership. If the
liabilities of your partnership were to be reduced, and you do not tender all of
your units pursuant to our offer, you will be treated as receiving a
hypothetical distribution of cash resulting from a decrease in your share of the
liabilities of your partnership. Any such hypothetical distribution of cash
would be treated as a nontaxable return of capital to the extent of your
adjusted tax basis in your units and thereafter as gain.
YOU MAY BE UNABLE TO TRANSFER YOUR UNITS FOR A 12-MONTH PERIOD.
Your partnership's agreement of limited partnership prohibits any transfer
of units without the consent of your general partner (which is our subsidiary).
Such consent may be withheld by your general partner in its sole discretion.
Your general partner must withhold its consent if such transfer would result in
the termination of your partnership for tax purposes which would occur if 50% or
more of the total interest in your partnership is transferred within a 12-month
period. If we acquire a significant percentage of the interest in your
partnership, you may not be able to a transfer your units for a 12-month period
following our offer.
IT IS NOT KNOWN WHEN THE PROPERTIES OWNED BY VMS MAY BE SOLD.
There may be no way to liquidate your investment in your partnership in the
future until the property is sold and your partnership is liquidated. VMS
currently owns 15 properties. The general partner of your partnership
continually considers whether a property should be sold or otherwise disposed of
after consideration of relevant factors, including prevailing economic
conditions, availability of favorable financing and tax considerations, with a
view to achieving maximum capital appreciation for your partnership. We cannot
predict when the properties will be sold or otherwise disposed of. However,
there is no current plan or intention to sell the properties in the near future.
45
SPECIAL FACTORS TO CONSIDER
In reviewing the offer, you should pay special attention to the information
in the Sections entitled "Background and Reasons for the Offer," "Valuation of
Units" and "Fairness of the Offer" which contain information regarding the
background and reasons for the offer, the method of evaluating units in the
offer and alternative valuation methods considered and our view as to the
fairness of the offer.
46
VALUATION OF UNITS
We determined our cash offer consideration by estimating the value of the
properties owned by VMS using the direct capitalization method. This method
involves applying a capitalization rate to the annual property income. A
capitalization rate is a percentage (rate of return), commonly applied by
purchasers of residential real estate to property income to determine the
present value of income property. The lower the capitalization rate utilized the
higher the value produced, and the higher the capitalization rate utilized the
lower the value produced. Our method for selecting a capitalization rate begins
with each property being assigned a location and condition rating (e.g., "A" for
excellent, "B" for good, "C" for fair, and "D" for poor). We then adjust the
capitalization rate based on whether the mortgage debt that the property is
subject to bears interest at a rate above or below 7.5% per annum. Generally,
for every 0.5% in excess of 7.5%, the capitalization rate would be increased by
0.25%. The evaluation of a property's location and condition, and the
determination of an appropriate capitalization rate for a property, is
subjective in nature, and others evaluating the same property might use a
different capitalization rate and derive a different property value.
Property income is the difference between the revenues from the property
and related costs and expenses, excluding income derived from sources other than
regular activities and before income deductions. Income deductions include
interest, income taxes, prior-year adjustments, charges to reserves, write-offs
of intangibles, adjustments arising from major changes in accounting methods and
other material and nonrecurrent items. In this respect, property income differs
from net income disclosed in the partnership's financial statements, which does
not exclude these income sources and deductions.
Although the direct capitalization method is a widely accepted way of
valuing real estate, there are a number of other methods available to value real
estate, each of which may result in different valuations of a property. Further,
in applying the direct capitalization method, others may make different
assumptions and obtain different results. The proceeds that you would receive if
you sold your units to someone else or if your partnership were actually
liquidated might be higher or lower than our cash offer consideration. We
determined your partnership's value as follows:
- First, we estimated a range of values for the VMS properties using the
direct capitalization method. For each property, we selected
capitalization rates based on our experience in valuing similar
properties. The higher the capitalization rate applied to a property's
income the lower its value, and the lower the capitalization rate applied
to a property's income the higher its value. We considered local market
sales information for comparable properties, estimated actual
capitalization rates (property income less capital reserves divided by
sales price) and then evaluated each property in light of its relative
competitive position, taking into account property location, occupancy
rate, overall property condition and other relevant factors. The AIMCO
Operating Partnership believes that arms-length purchasers would base
their purchase offers on capitalization rates which might be higher or
lower than those used by us, resulting in property values for each such
property which would be lower or higher, respectively, than those set
forth below. We determined property income for each property using
annualized revenue for the quarter ended March 31, 2002 and actual costs
and expenses for the fiscal year ended December 31, 2001. We then divided
such amount by two capitalization rates to derive a low and a high
estimated gross property value.
Based on the above, we derived a low and high estimate of total gross
property values for the VMS properties of $178,219,000 to $219,188,000,
respectively.
LOW HIGH
------------------------------- -------------------------------
ANNUALIZED ESTIMATED ESTIMATED
PROPERTY CAPITALIZATION GROSS PROPERTY CAPITALIZATION GROSS PROPERTY
PROPERTY INCOME RATE VALUE RATE VALUE
-------- ---------- -------------- -------------- -------------- --------------
Buena Vista.................... $ 956,000 10.86% $ 8,800,000 8.83% $ 10,823,000
Casa De Monterey............... 859,000 12.82 6,700,000 10.42 8,240,000
Chapelle Le Grande............. 383,000 13.44 2,850,000 10.93 3,505,000
Crosswood...................... 842,000 8.10 10,400,000 6.58 12,791,000
47
LOW HIGH
------------------------------- -------------------------------
ANNUALIZED ESTIMATED ESTIMATED
PROPERTY CAPITALIZATION GROSS PROPERTY CAPITALIZATION GROSS PROPERTY
PROPERTY INCOME RATE VALUE RATE VALUE
-------- ---------- -------------- -------------- -------------- --------------
Forest Ridge................... 1,175,000 11.09 10,600,000 9.01 13,037,000
Mountain View.................. 1,514,000 10.81 14,000,000 8.79 17,218,000
North Park..................... 786,000 11.44 6,869,000 9.30 8,448,000
Pathfinders.................... 2,130,000 7.55 28,200,000 6.14 34,682,000
Scotchollow.................... 3,997,000 7.92 50,500,000 6.44 62,109,000
Shadowood...................... 407,000 12.32 3,300,000 10.02 4,059,000
Terrace Garden Townhouses...... 564,000 11.06 5,100,000 8.99 6,272,000
The Bluffs..................... 546,000 15.18 3,600,000 12.34 4,428,000
Towers of Westchester.......... 2,141,000 10.49 20,400,000 8.53 25,089,000
Vista Village.................. 413,000 11.80 3,500,000 9.59 4,305,000
Watergate...................... 303,000 8.92 3,400,000 7.25 4,182,000
------------ ------------
Estimated Total Gross
Property Value............ $178,219,000 $219,188,000
------------ ------------
- Second, we calculated a range of values for the equity of VMS by adding
to the low and high estimated gross property value of all properties
owned by VMS, the value of the non-real estate assets of VMS, and
deducting the liabilities of VMS, including mortgage debt and debt owed
by VMS to its general partner or its affiliates after consideration of
any applicable subordination provisions affecting payment of such debt.
We deducted from these values certain other costs including required
capital expenditures, deferred maintenance, and closing costs to derive a
low and high net equity value for VMS of $0 and $17,931,339,
respectively. Closing costs include legal and accounting fees, real
property, transfer taxes, title and escrow costs and broker's fees.
Based on our low and high estimated total gross property values, we derived
a range of estimated unit values of $0 to $20,633. Based on this range of unit
values, we have decided to offer you $3,000 per unit.
LOW HIGH
------------- -------------
Gross valuation of partnership properties.............. $ 178,219,000 $ 219,188,000
Plus: Cash and cash equivalents........................ 2,058,923 2,058,923
Plus: Other partnership assets, net of security
deposits............................................. 4,047,336 4,047,336
Less: Mortgage debt, including accrued interest........ (132,338,390) (132,338,390)
Less: GP Loans......................................... (3,677,261) (3,677,261)
Less: Class 3C Claims to PLT & ContiTrade.............. (39,585,360) (42,138,521)
Less: Share to MF VMS.................................. (5,387,756) (25,872,256)
Less: Accounts payable and accrued expenses............ (1,182,200) (1,182,200)
Less: Other liabilities................................ (957,524) (957,524)
------------- -------------
Partnership valuation before taxes and certain costs... $ 1,196,768 $ 19,128,107
Less: Extraordinary capital expenditures and deferred
maintenance.......................................... (407,673) (407,673)
Less: Closing costs.................................... (789,095) (789,095)
------------- -------------
48
LOW HIGH
------------- -------------
Estimated net valuation of your partnership............ $ 0 $ 17,931,339
Percentage of estimated net valuation allocated to
holders of units..................................... N/A 29.39%
------------- -------------
Estimated net valuation of units....................... $ 0 5,270,021
Total number of units*............................ 255.42 255.42
------------- -------------
Estimated valuation per unit........................... $ 0.00 $ 20,633.00
============= =============
---------------
* Includes only non-default limited partners.
In order to determine the number of OP Units we are offering for each of
your units, we divided the cash offer consideration of $3,000 by a price of
$46.63 to get 64.50 OP Units per unit.
49
BACKGROUND AND REASONS FOR THE OFFER
BACKGROUND OF THE OFFER
GENERAL
We are in the business of acquiring direct and indirect interests in
apartment properties such as the properties in which your partnership indirectly
owns an interest. Our offer provides us with an opportunity to increase our
ownership interest in these properties while providing you and other investors
with an opportunity to liquidate your current investment and to invest in our OP
Units or receive cash, or to retain your units.
In June 1999, we commenced a cash tender offer for your partnership at the
price of $98 per unit, and acquired 18.49 units. On May 15, 2000, we commenced a
cash tender offer for your partnership at the price of $288 per unit, and
acquired 11.99 units. On October 18, 2001, we commenced a cash tender offer at
the price of $1,077 per unit, and acquired 6.33 units in that offer.
We are aware that other tender offers may have been made by unaffiliated
third parties to acquire units in your partnership in exchange for cash. We are
unaware of the amounts offered, terms, tendering parties or number of units
involved in any pending tender offers.
ALTERNATIVES CONSIDERED
The following is a brief discussion of the benefits and disadvantages of
alternatives to our offer that could have been pursued by your general partner
(which is our subsidiary).
LIQUIDATION
Benefits of Liquidation. One alternative to our offer would be for VMS to
sell its assets, distribute the net liquidation proceeds to its partners and for
your partnership, in turn, to distribute its share of such proceeds to its
partners in accordance with your partnership's agreement of limited partnership,
and then dissolve. Partners would be at liberty to use the net liquidation
proceeds after taxes for investment, business, personal or other purposes, at
their option. If VMS were to sell its assets and liquidate, you and your
partners would not need to rely upon capitalization of income or other valuation
methods to estimate the fair market value of your partnership's assets. Instead,
such assets would be valued through negotiations with prospective purchasers (in
many cases unrelated third parties).
Disadvantages of Liquidation. A liquidating sale of some or all of the VMS
properties would be a taxable event for you and your partners and could result
in significant amounts of taxable income to you and your partners. In the
opinion of your general partner (which is our subsidiary), the present time may
not be the most desirable time to sell the real estate assets of VMS in private
transactions, and any liquidation sale would be uncertain. Liquidation of VMS
would trigger a substantial prepayment penalty on the senior debt. Your general
partner believes it currently is in the best interest of your partnership for
VMS to continue holding its real estate assets.
CONTINUATION OF THE PARTNERSHIP WITHOUT THE OFFER
Benefits of Continuation. Although our offer permits you to continue your
investment in your partnership, a second alternative would be for VMS to
continue to own and operate its properties and for your partnership to continue
to participate in VMS, without our offer. A number of advantages could result
from the continued ownership and operation of the VMS properties. Given
improving rental market conditions, the level of distributions might increase
over time. It is possible that the private resale market for apartment
properties could improve over time, making a sale of the VMS properties in a
private transaction at some point in the future a more viable option than it is
currently. The continuation of VMS and of your partnership's participation in
VMS, will allow you to continue to participate in the net income from the
properties and any net proceeds from the future sale of the properties.
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Disadvantages of Continuation. There are several risks and disadvantages
that result from continuing operations without our offer. As a limited partner,
you are likely to continue to receive allocations of taxable income from your
partnership without any corresponding distributions. Unless you have losses from
passive investments (including VMS) or other tax attributes to offset such
taxable income, you may be required to pay taxes in respect of such income
without any corresponding receipt of cash. We currently estimate, based on
certain projections, that partners in your partnership will receive taxable
income of approximately $120,010 for 2002, $996,611 for 2003, $1,123,893 for
2004, $1,232,876 for 2005, $1,328,159 for 2006, $1,411,870 for 2007 and
$1,474,653 for 2008. The foregoing are merely estimates, and there can be no
assurance that such estimates will prove accurate in the future. This situation
has arisen primarily because of the declining amount of depreciation deductions
from the properties in which your partnership has invested through VMS. All of
the cash flow is currently dedicated to the payment of operating expenses,
capital expenditures and debt service. Accordingly, we estimate that over the
next seven years, the owner of one limited partnership unit will realize
approximately $29,498 in taxable income from your partnership without any cash
distributions to pay the tax due thereon.
If VMS and your partnership continue operating as presently structured, VMS
would be required to sell its properties and liquidate if VMS cannot refinance
or repay its indebtedness at maturity in 2008 pursuant to the VMS plan of
reorganization. VMS has approximately $93,243,000 of balloon payments due on its
senior mortgage debt in 2008 and $28,250,000 of balloon payments due on its
junior mortgage debt in 2008. Continuation of VMS and your partnership without
the offer would deny you and your partners the benefits that your general
partner (which is our subsidiary) expects to result from our offer. For example,
you would have no opportunity for liquidity unless you were to sell your units
in a private transaction. Any such sale would likely be at a very substantial
discount from fair market value. Continuation without our offer would deny you
and your partners the benefits of diversification into a company which has a
much larger and more diverse portfolio of apartment properties.
ALTERNATIVE STRUCTURES CONSIDERED
Before we decided to make our offer, we considered a number of alternative
transactions, including merging your partnership; purchasing some or all of the
VMS properties; making an offer of only cash for your units; and making an offer
of only OP Units for your units. A merger would require a vote of the limited
partners of your partnership. If the merger was approved, all limited partners,
including those who wish to retain their units and continue to participate in
your partnership, would be forced to participate in the merger transaction. If
the merger was not approved, all limited partners, including those who would
like to liquidate their investment in your partnership, would be forced to
retain their units.
We also considered purchasing the VMS properties. However, a sale of the
VMS properties would require a vote of a majority of the limited partners. If
the sale was approved, all limited partners, including those who wish to
continue to participate in the ownership of the VMS properties, would be forced
to participate in the sale transaction, and possibly to recognize taxable
income. If the sale was not approved, all limited partners, including those who
would like to dispose of their investment in the VMS properties, would be forced
to retain their investment.
In order to give all limited partners in your partnership an opportunity to
make their own investment decision, we elected to make an offer directly to you
and the other limited partners Since 1998, we have made three separate cash
tender offers to your partnership. We considered making another all cash offer
in order to satisfy some limited partners' desire for immediate liquidity.
However, another all cash offer would not be desirable for those limited
partners who do not desire immediate liquidity and do not want to immediately
recognize any taxable income, but might otherwise be interested in disposing of
their investment in your partnership and might want an opportunity to control
the timing of any realization of taxable income associated with liquidating such
investment in the future.
We considered making an offer of only OP Units. The primary disadvantage of
an all OP Unit offer is that those limited partners who want immediate liquidity
would be forced to wait at least one year before exchanging their OP Units for
cash or AIMCO stock.
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After considering these alternatives, we decided to offer limited partners
the possibility of both forms of consideration: cash and OP Units. We think that
such an offer will appeal to a large number of limited partners in your
partnership, while permitting each one to retain any or all of his or her units
and remain a limited partner in your partnership on the same terms as before.
SALE OF ASSETS
VMS could sell the properties it owns. The general partner of your
partnership considers the sale of the VMS properties from time to time. However,
any such sale would likely be a taxable transaction.
EXPECTED BENEFITS OF THE OFFER
We are in the business of acquiring direct and indirect interests in
apartment properties such as the properties in which your partnership indirectly
owns an interest. Our offer provides us with an opportunity to increase our
ownership interest in these properties while providing you and other investors
with an opportunity to retain or liquidate your investment or to invest in the
AIMCO Operating Partnership.
There are five principal advantages of tendering your units for OP Units:
- Tax Deferral. You generally will not recognize any immediate taxable
gain if you exchange your units solely for OP Units.
- Enhanced Liquidity After One Year. While the holders of the OP Units
must hold such units for one year, subject to certain exceptions, after a
one-year holding period, you may choose to redeem your OP Units and
receive, at our option, shares of AIMCO's Class A Common Stock (on a one-
for-one basis, subject to adjustment in certain circumstances) or an
equivalent amount of cash. AIMCO's Class A Common Stock is listed and
traded on the NYSE.
- Quarterly Distributions. Your partnership paid no distributions for the
fiscal year ended December 31, 2001. All of the cash flow from your
partnership is currently dedicated to the payment of operating expenses,
capital expenditures and debt service. In addition, you are likely to
continue to receive allocations of taxable income from your partnership
without any corresponding distributions. Current annualized distributions
on the OP Units are $3.28 per unit. Assuming no change in the level of
our distributions, this is equivalent to a distribution of $211.56 per
year on the number of OP Units you will receive in exchange for each of
your partnership units. See "The AIMCO Operating Partnership."
- Growth Potential. Our assets, organizational structure and access to
capital enables us to pursue acquisition and development opportunities
that are not available to your partnership. You would have the
opportunity to participate in the growth of our enterprise and would
benefit from any future increase in the AIMCO stock price and from any
future increase in distributions on the OP Units.
- Diversification. We have a substantially larger and more diverse
portfolio of apartment properties than your partnership.
The principal advantage if you tender your units for cash is immediate
liquidity. However, tendering your units for cash may cause you to recognize
taxable gain for Federal income tax purposes.
DISADVANTAGES OF THE OFFER
The principal disadvantages to the offer are:
- Lack of Independent Price Determination. We determined the offer price
and the terms of the offer, including the exchange ratio for OP Units.
The terms of the offer and the nature of the securities could differ if
they were subject to independent third party negotiations.
- No Separate Representation of Limited Partners. In structuring the offer
and the consideration, no one separately represented the interests of the
limited partners. Although we have a fiduciary duty
52
to the limited partners, we also have conflicting responsibilities to our equity
holders. We did not appoint, or ask the limited partners to appoint, a party to
represent only their interests.
- No Proposal to Sell the Properties. We are not proposing to try to sell
the VMS properties and distribute the net proceeds. An arms-length sale
of the properties after offering them for sale through licensed real
estate brokers might be a better way to determine the true value of the
properties rather than the method we chose. The sale of the properties
and the liquidation of VMS and your partnership might result in greater
pre-tax cash proceeds to you than our offer.
- OP Units. Investing in OP Units has risks that include the lack of a
public market, transfer restrictions and a one-year holding period before
they can be redeemed by a holder. The ultimate return on the OP Units is
directly tied to the future price of AIMCO's Class A Common Stock. If you
exchange your units for OP Units, you could ultimately receive less for
the OP Units than the cash price in our offer.
- Continuation of the Partnership. We are proposing to continue to operate
your partnership and not liquidate it at the present time. Thus, our
offer does not satisfy any expectation that you would receive the return
of your investment in the partnership through a sale of the VMS
properties at the present time. Although the actual proceeds obtained
from a sale of the VMS properties is highly uncertain, we believe that at
the present time, a sale of such properties would result in proceeds
close to the low end of our current estimated range of values for such
properties. Under these circumstances, limited partners of your
partnership would not receive any proceeds from such sale. In addition, a
sale of the VMS properties would be a taxable event to the limited
partners of your partnership and could result in significant taxable
income to the limited partners without any corresponding distributions.
In determining the fairness of the offer, we and your general partner
were aware of the fact that if VMS and your partnership were liquidated,
your general partner (which is our subsidiary) would not continue to
receive the fees that it currently receives. However, this fact did not
affect our determination of whether or not to sell the VMS properties.
The term of your partnership will expire on December 31, 2030, and the
term of VMS will expire on September 26, 2044. If VMS cannot refinance or
repay its indebtedness at maturity in 2008, VMS would be required to
liquidate and sell its properties under the VMS plan of reorganization.
- Possible Recognition of Taxable Gain. If you exercise your redemption
right with respect to the OP Units within two years of the date that you
transfer your units to the AIMCO Operating Partnership, your exchange of
units for OP Units and cash could be treated as a disguised sale of your
units and you would be required to recognize gain or loss in the year of
the exchange on such disguised sale. See "United States Federal Income
Tax Consequences -- Disguised Sales."
For a description of certain risks of our offer, see "Risk Factors."
53
FAIRNESS OF THE OFFER
POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER;
FAIRNESS
Your general partner is a subsidiary of the AIMCO Operating Partnership. As
a result, your general partner has a conflict of interest and makes no
recommendation to you as to whether you should tender or refrain from tendering
your units. Your general partner did not participate in the structuring of the
offer and has substantial conflicts of interest with regard to the offer.
However, for all of the reasons discussed herein, we and your general partner
believe that the offer and all forms of consideration offered is fair to you and
the limited partners of your partnership. You should make your decision whether
to tender based upon a number of factors, including your financial needs, other
financial opportunities available to you and your tax position.
The terms of our offer have been established by us and are not the result
of arms-length negotiations. In evaluating the fairness of the offer, your
general partner (which is our subsidiary) and the AIMCO Operating Partnership
considered the following factors and information:
1. The opportunity for you to make an individual decision on whether
to tender your units in the offer and that the offer allows each investor
to continue to hold his or her units.
2. The estimated value of the VMS properties has been determined
based on a method believed to reflect the valuation of such assets by
buyers in the market.
3. An analysis of the possible alternatives including liquidation and
continuation without the option of the offer, including our estimated going
concern value of your partnership of $12,387 per unit. See "Background and
Reasons for the Offer -- Alternatives Considered."
4. An evaluation of the financial condition and results of operations
of VMS, your partnership and the AIMCO Operating Partnership and their
anticipated level of operating results. The offer is not expected to have
an effect on your partnership's financial condition or results of
operations. The net loss of VMS has increased from a loss of $40,000 for
the year ended December 31, 2000 to a loss of $2,910,000 for the year ended
December 31, 2001. These factors are reflected in our valuation of your
partnership.
5. The method of determining the offer consideration which is
intended to provide you with OP Units or cash that are substantially the
financial equivalent to your interest in your partnership. See "Valuation
of Units."
6. The fact that the units are illiquid and the offer provides
holders of units with liquidity. However, we did review whether trading
information was available.
7. The fact that the offer generally provides holders of units with
the opportunity to receive both cash and OP Units together.
8. The fact that the offer provides holders of units with the
opportunity to defer taxes by electing to accept OP Units.
9. An evaluation of the market price of the Class A Common Stock and
the limited information on prices at which OP Units and units are
transferred. See "Your Partnership -- Distributions and Transfers of
Units." No assurance can be given that the Class A Common Stock will
continue to trade at its current price.
10. The range of estimated unit values of $0 to $20,633, based on a
range of $178,219,000 to $219,188,000 for the total estimated property
value of the VMS properties. Your general partner (which is our subsidiary)
has no present intention to liquidate VMS or your partnership or to sell or
refinance the VMS properties. See "Background and Reasons for the Offer".
See "Valuation of Units" for a detailed explanation of the methods we used
to value your partnership.
54
11. The offer consideration of $3,000 per unit or 64.50 OP Units per
unit, which is determined by dividing the cash offer consideration of
$3,000 by a price of $46.63.
12. Current annualized distributions with respect to the OP Units are
$3.28 per unit. This is equivalent to distributions of $211.56 per year on
the number of OP Units that you would receive in exchange for each of your
partnership's units. There were no distributions made with respect to your
units for the fiscal year ended December 31, 2001. See "Comparison of Your
Units and AIMCO OP Units -- Distributions."
13. The fact that if your partnership were liquidated as opposed to
continuing, the general partner (which is our subsidiary) would not receive
the substantial management fees it currently receives. As discussed in
"Fairness of the Offer -- Comparison of Consideration to Alternative
Consideration -- Estimated Liquidation Proceeds," we do not believe that
liquidation of the partnership is in the best interests of the unitholders.
Therefore, we believe the offer is fair in that the fees paid to the
general partner would continue even if the offer was not consummated. We
are not proposing to change the current management fee arrangement.
In evaluating these factors, your general partner (which is our subsidiary)
and the AIMCO Operating Partnership did not quantify or otherwise attach
particular weight to any of them.
Your general partner (which is our subsidiary) has not retained an
unaffiliated representative to act on behalf of the limited partners in
negotiating the terms of the offer since each individual limited partner can
make his own decision as to whether or not to tender and what consideration to
take. Unlike a merger or other form of partnership reorganization, in our offer,
holders of a majority of the partnership interests in your partnership cannot
bind you. If an unaffiliated representative had been obtained, it is possible
that such representative could have negotiated a higher price for your units
than we are offering.
FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS
Your general partner (which is our subsidiary) makes no recommendation as
to whether you should tender or refrain from tendering your units. The terms of
the offer have been established by the AIMCO Operating Partnership and are not
the result of arms-length negotiations. See "Conflicts of Interest." The general
partner of your partnership and the AIMCO Operating Partnership believe that the
valuation method described in "Valuation of Units" provides a meaningful
indication of value for residential apartment properties and, although there are
other ways to value real estate, is a reasonably fair method to determine the
consideration offered. Although we believe our offer consideration represents
the amount you would receive if we currently liquidated VMS and your
partnership, an actual liquidation might generate a higher or lower price for
holders of units. A liquidation in the future might generate a higher or lower
price for holders of units.
The future value of any OP Units you receive in the offer will depend on
some of the same factors that will affect the value of your units, primarily the
condition of real estate markets. However, if you exchange your units for OP
Units, you will be able to liquidate your investment only by tendering your OP
Units for redemption after a one-year holding period or by selling your OP
Units.
FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS
Your general partner (which is our subsidiary) makes no recommendation as
to whether you should tender or refrain from tendering your units. If you choose
not to tender any units, your interest in your partnership will remain
unchanged. The identity of the other limited partners of your partnership may
change. If the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, AIMCO may be in a position to influence voting
decisions with respect to your partnership. AIMCO has no present intention to
sell your partnership's property or refinance its indebtedness within any
specified time period.
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COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION
GENERAL
To assist holders of units in evaluating the offer, your general partner
(which is our subsidiary) has attempted to compare the cash offer consideration
against: (a) estimates of the value of your units on a liquidation basis; (b)
estimates of the going concern value of your units based on the continued
ownership and operation of the properties by VMS; and (c) the net asset value of
your units. The general partner of your partnership believes that analyzing the
alternatives in terms of estimated value, based upon currently available data
and, where appropriate, reasonable assumptions made in good faith, establishes a
reasonable framework for comparing alternatives. Since the value of the
consideration for alternatives to the offer is dependent upon varying market
conditions, no assurance can be given that the estimated values reflect the
range of possible values. See "Valuation of Units."
The results of these comparative analyses are summarized in the following
chart. You should bear in mind that the estimated values assigned to the
alternate forms of consideration are based on a variety of assumptions that have
been made by us. These assumptions relate to, among other things: the operating
results since December 31, 2001 as to property income, other projected amounts
and the capitalization rates that may be used by prospective buyers if your
partnership assets were to be liquidated.
In addition, these estimates are based upon certain information available
to your general partner (which is our subsidiary) at the time the estimates were
computed, and no assurance can be given that the same conditions analyzed by it
in arriving at the estimates of value would exist at the time of the offer. The
assumptions used have been determined by the general partner of your partnership
in good faith, and, where appropriate, are based upon current and historical
information regarding your partnership and current real estate markets, and have
been highlighted below to the extent critical to the conclusions of the general
partner of your partnership. Actual results may vary from those set forth below
based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar apartment properties, the manner in which
the VMS properties are sold and changes in availability of capital to finance
acquisitions of apartment properties.
Under your partnership's agreement of limited partnership, the term of the
partnership will continue until December 31, 2030, unless sooner terminated as
provided in the agreement or by law. Limited partners could, as an alternative
to tendering their units, take a variety of possible actions, including voting
to liquidate the partnership or amending the agreement of limited partnership to
authorize limited partners to cause the partnership to merge with another entity
or engage in a "roll-up" or similar transaction.
COMPARISON TABLE
PER UNIT
-------------
Cash offer price............................................ $ 3,000
Alternatives:
Prior cash offer price.................................... $ 1,077(1)
Estimated range of liquidation proceeds................... $0 to $20,633
Estimated going concern value............................. $ 12,387(2)
Net asset value........................................... $ 0
---------------
(1) Highest price offered in our prior tender offers.
(2) Assumes a sale of each property in 2008 when the mortgage is due, rather
than a refinancing.
PRICES ON SECONDARY MARKET
There is no active market for your units. Your general partner (which is
our subsidiary) is unaware of any secondary market activity in the units.
Therefore any comparison to prices on the secondary market is
56
not possible at the present time. See "Your Partnership -- Distributions and
Transfers of Units -- Transfers."
PRIOR TENDER OFFERS
In June 1999, we commenced a cash tender offer for your partnership at the
price of $98 per unit, and acquired 18.49 units. On May 15, 2000, we commenced a
cash tender offer for your partnership at the price of $288 per unit, and
acquired 11.99 units. On October 18, 2001, we commenced a cash tender offer at
the price of $1,077 per unit, and acquired 6.33 units in that offer.
We are aware that other tender offers may have been made by unaffiliated
third parties to acquire units in your partnership in exchange for cash. We are
unaware of the amounts offered, terms, tendering parties or number of units
involved in any pending tender offers.
ESTIMATED LIQUIDATION PROCEEDS
Liquidation value is a measure of the price at which the assets of VMS and
your partnership would sell if disposed of in an arms-length transaction between
a willing buyer and your partnership, each having access to relevant information
regarding the historical revenues and expenses of the business. Your general
partner (which is our subsidiary) estimated the liquidation value of units using
the same direct capitalization method and assumptions as we did in valuing the
units for the cash offer consideration. See "Valuation of Units." The
liquidation analysis also assumed that the VMS properties were sold to an
independent third-party buyer at the current property value and that other
balance sheet assets (excluding amortizing assets) and liabilities of VMS were
sold at their book value, all liabilities were paid and that the net proceeds of
sale were allocated to your partners in accordance with the VMS joint venture
agreement and plan of reorganization and your partnership's agreement of limited
partnership.
The liquidation analysis assumes that the assets of your partnership and
VMS are sold in a single transaction. Should the assets be liquidated over time,
even at prices equal to those projected, distributions to limited partners from
cash flow from operations might be reduced because your partnership's relatively
fixed costs, such as general and administrative expenses, are not
proportionately reduced with the liquidation of assets. However, for
simplification purposes, the sales of the assets are assumed to occur
concurrently. The liquidation analysis assumes that the assets would be disposed
of in an orderly manner and not sold in forced or distressed sales where sellers
might be expected to dispose of their interests at substantial discounts to
their actual fair market value.
ESTIMATED GOING CONCERN VALUE
Going concern value is a measure of the value of your partnership if VMS
continues to own and operate its properties. The estimated value of the
partnership on a going concern basis is not intended to reflect the
distributions payable to limited partners if its assets were to be sold at their
current fair market value. The general partner of your partnership estimated the
going-concern value of your partnership by analyzing projected cash flows and
performing a discounted cash flow analysis. The general partner of your
partnership assumed that your partnership will be operated in the same manner as
currently structured and its assets sold in a liquidation when the mortgage is
due. Distribution and sale proceeds per partnership unit were discounted in the
projections at a rate of 20%.
The general partner of your partnership assumed that real estate selling
costs will be incurred which will equal 0.5% of the sales price. This analysis
assumes that the VMS properties will be sold in a liquidation, at the expiration
of the mortgage term, to an independent third-party buyer. Upon such
liquidation, other balance sheet assets (excluding amortizing assets) of VMS
will be sold at their book value, all liabilities will be paid and the net
proceeds of sale will be allocated between your partnership and VMS National
Residential Portfolio I, and then to the limited partners and general partner of
your partnership in accordance with your partnership's agreement of limited
partnership and the VMS plan of reorganization. Should the assets be liquidated
over time, even at prices equal to those projected, distributions to limited
partners of the cash flow from operations might be reduced because relatively
fixed
57
costs, such as general and administrative expenses, are not proportionately
reduced with the liquidation of assets. However, for simplification purposes,
the sales are assumed to occur concurrently.
The going concern method relies on a number of assumptions, including among
other things, (i) rental rates for new leases and lease renewals; (ii)
improvements needed to prepare an apartment for a new lease or a renewal lease;
(iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and
(vi) discount rates applied to future cash flows. The use of assumptions or
variables that differ from those described above could produce substantially
different results. Neither we nor the general partner of your partnership
solicited any offers or inquiries from prospective buyers of the VMS properties
in connection with the preparation of the estimates of value of the properties
and the actual amounts for which the VMS properties or your partnership could be
sold could be significantly higher or lower than any of the estimates contained
herein. The estimated going concern value of your partnership is $12,387 per
unit.
The general partner determined going concern value based upon the
discounted present value of projected cash flows from VMS over a seven year
period of operation. Such discounted cash flows were based upon year one
property income from the real estate escalated at 1.5% per annum for the
projection period. At the end of the seven year projection period, each property
was assumed to be sold at a price based upon property income for the immediately
following year, capitalized at various capitalization rates, less expenses of
sale estimated at 0.5% of the property value. The net cash flow to limited
partners from the continued operation of the properties and the net proceeds of
sale were then discounted at a discount rate of 20% to achieve the going concern
value of $12,387 per unit.
We believe our offer consideration is fair in relation to the going concern
value because this going concern value does not take into account (i) the
recognition of taxable income from your partnership without any corresponding
distributions, or (ii) other risks associated with VMS continuing to own and
operate its properties.
NET ASSET VALUE
The estimated net asset value is based on a hypothetical sale of the
partnership's properties and the distribution to the limited partners and the
general partner of the gross proceeds of such sales, net of related
indebtedness, together with the cash, proceeds from temporary investments, and
all other assets that are believed to have liquidation value, after provision in
full for all of the other known liabilities of your partnership. The estimated
net asset value of your partnership is $0 per unit and, therefore, a comparison
with the offering price would not be meaningful in determining the fairness of
the offer price.
ALLOCATION OF CONSIDERATION
We determined our offer consideration based on our range of estimated
liquidation values for your partnership of $0 to $20,633 per unit. Based on this
range of unit values, we have decided to offer you $3,000 per unit.
58
YOUR PARTNERSHIP
GENERAL
VMS was organized in September 1984 under the laws of the State of
Illinois. Its primary business is real estate ownership and related operations.
VMS was formed for the purpose of making investments in various types of real
properties which offer potential capital appreciation and cash distributions to
its limited partners.
YOUR PARTNERSHIP AND ITS PROPERTY
The general partners of VMS are VMS National Residential Portfolio I and
VMS National Residential Portfolio II (your partnership). Your partnership owns
a 29.31% participation interest in VMS. A wholly owned subsidiary of AIMCO
serves as manager of the properties owned by VMS. There are currently 267 units
of your partnership issued and outstanding, which are held of record by 289
limited partners.
VMS' investment portfolio currently consists of the following 15
residential apartment complexes: Buena Vista, a 92-unit complex in Pasadena,
California; Casa de Monterey, a 144-unit complex in Norwalk, California;
Crosswood Park, a 180-unit complex in Citrus Heights, California; Mountain View,
a 168-unit complex in San Dimas, California; Pathfinders Village, a 246-unit
complex in Fremont, California; Scotchollow, a 418-unit complex in San Mateo,
California; The Bluffs, a 137-unit complex in Milwaukee, Oregon; Vista Village,
a 220-unit complex in El Paso, Texas; Chapelle Le Grande, a 105-unit complex in
Merrillville, Indiana; Shadowood, a 120-unit complex in Monroe, Louisiana;
Towers of Westchester Park, a 303-unit complex in College Park, Maryland;
Terrace Gardens, a 126-unit complex in Omaha, Nebraska; North Park Apartments, a
284-unit complex in Evansville, Indiana; Watergate, a 140-unit complex in Little
Rock, Arkansas; and Forest Ridge, a 278-unit complex in Flagstaff, Arizona.
Your partnership's and general partner's principal executive offices are
located at Colorado Center, Tower Two, 2000 South Colorado Boulevard, Suite
2-1000, Denver, Colorado 80222, telephone (303) 757-8101.
For additional information about your partnership and VMS, please refer to
the VMS Annual Report on Form 10-K for the year ended December 31, 2001,
particularly Item 2 of the Form 10-K, which contains detailed information
regarding the properties owned, including mortgages, rental rates and taxes.
PROPERTY MANAGEMENT
The VMS properties are managed by an entity which is a wholly owned
subsidiary of AIMCO. Pursuant to the management agreement between the property
manager and VMS, the property manager operates the VMS properties, establishes
rental policies and rates, and directs marketing activities. The property
manager also is responsible for maintenance, the purchase of equipment and
supplies, and the selection and engagement of all vendors, suppliers and
independent contractors.
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS
Under your partnership's agreement of limited partnership, your partnership
is not permitted to raise new equity and reinvest cash in new properties.
Consequently, your partnership is limited in its ability to expand its
investment portfolio. Your partnership will terminate on December 31, 2030
unless earlier dissolved. Your partnership has no present intention to
liquidate, sell, finance or refinance the VMS properties within any specified
time period. Under the VMS plan of reorganization, VMS will be required to sell
its properties and liquidate if VMS cannot refinance or repay its indebtedness
at maturity in 2008.
Generally, VMS is authorized to acquire, develop, improve, own and operate
the VMS properties as an investment and for income producing purposes. The
investment portfolio of VMS is limited to the assets acquired with the initial
equity raised through the sale of units to the limited partners of your
partnership and VMS National Residential Portfolio I or the assets initially
contributed to VMS by the
59
limited partners of your partnership and of VMS National Residential Portfolio
I, as well as the debt financing obtained by VMS within the established
borrowing restrictions.
An investment in your partnership is a finite life investment, with the
partners to receive regular cash distributions out of your partnership's
distributable cash flow, if available, and to receive cash distributions upon
liquidation of real estate investments, if available.
In general, your general partner (which is our subsidiary) regularly
evaluates the VMS properties by considering various factors, such as the
partnership's financial position and real estate and capital markets conditions.
The general partner monitors each property's specific locale and sub-market
conditions, including stability of the surrounding neighborhood, evaluating
current trends, competition, new construction and economic changes. The general
partner oversees each asset's operating performance and continuously evaluates
the physical improvement requirements. In addition, the financing structure for
each property, including any prepayment penalties, tax implications,
availability of attractive mortgage financing to a purchaser, and the investment
climate are all considered. Any of these factors, and possibly others, could
potentially contribute to any decision by the general partner to sell,
refinance, upgrade with capital improvements or hold a particular property. If
rental market conditions improve, the level of distributions might increase over
time. It is possible that the private resale market for properties could improve
over time, making a sale of the properties in a private transaction at some
point in the future a more viable option than it is currently. After taking into
account the foregoing considerations, your general partner is not currently
seeking a sale of the VMS properties primarily because it expects the
properties' operating performance to improve in the long term. In making this
assessment, your general partner noted the occupancy and rental rates at the
properties. In addition, the general partner noted that it expects to spend
approximately $407,673 for capital expenditures and capital improvements at the
properties in 2002 to repair and update the properties. These expenditures are
expected to improve the desirability of the properties to tenants. The general
partner does not believe that a sale of the properties at the present time would
adequately reflect their future prospects. Another significant factor considered
by your general partner is the likely tax consequences of a sale of the property
for cash. Such a transaction would likely result in tax liabilities for many
limited partners.
CAPITAL REPLACEMENT
VMS was restricted to annual capital improvements of $300 per unit for all
of the properties, which was the limit set by the senior and junior mortgage
agreements for funding of capital improvements. AIMCO-LP, VMS and the servicer
of the senior debt have agreed to a procedure to assess whether or not capital
expenditures, in addition to those permitted under the $300 per unit limit, are
needed at the properties and the methodology for funding any such capital
expenditures. This procedure was completed for each of the properties. The
parties agreed upon approximately $407,673 in required extraordinary capital
expenditures and deferred maintenance for 2002 and that these costs would be
funded out of the cash flows from the properties that otherwise would be
utilized to pay debt service on the junior debt. As a result, the balloon
payment due on the junior debt may be higher at maturity in January 2008 as
accrued but unpaid interest is added to the principal balance.
BORROWING POLICIES
Your partnership's agreement of limited partnership allows your partnership
to incur debt. As of December 31, 2001, VMS had mortgage debt outstanding of
$133,272,000. Your partnership's agreement of limited partnership also allows
the general partner of your partnership to lend funds to your partnership. As of
December 31, 2001, your general partner had loans outstanding of $3,608,000 to
your partnership.
COMPETITION
There are other residential properties within the market area of the VMS
properties. The number and quality of competitive properties in such an area
could have a material effect on the rental market for the
60
apartments at the VMS properties and the rents that may be charged for such
apartments. While AIMCO is a significant factor in the United States in the
apartment industry, competition for apartments is local.
LEGAL PROCEEDINGS
Your partnership or VMS may be a party to a variety of legal proceedings
related to the VMS properties and management and leasing business, respectively,
arising in the ordinary course of the business, which are not expected to have a
material adverse effect on your partnership or VMS.
On December 18, 2001, AIMCO voluntarily entered into a Consent Agreement
with the U.S. Environmental Protection Agency and HUD pursuant to which it
agreed, among other things, to re-issue lead-based paint disclosure to residents
of properties built prior to 1978 and which have not been certified as lead
paint free and to pay a penalty of approximately $130,000. The presence of
lead-based paint was discovered at the following VMS properties: Buena Vista,
Casa de Monterey, Pathfinders Village, The Bluffs, Towers of Westchester Park,
Crosswood, North Park, Terrace Garden Townhouses, Watergate, Forest Ridge,
Shadowood and Vista Village Apartments. The Consent Agreement is entered in the
matter of: Apartment Investment and Management Company, EPA Appeal's Board
Docket No. TSCA HQ-2002-0003, which is not expected to have a material adverse
effect on your partnership or VMS.
HISTORY OF THE PARTNERSHIP
VMS originally acquired 51 residential apartment properties with funds
raised by offering units in your partnership and in VMS National Residential
Portfolio I. Of these 51 properties, four were foreclosed prior to 1993. In
February 1991, VMS filed for Chapter 11 bankruptcy protection. The VMS plan of
reorganization became effective in September 1993. Under the plan of
reorganization, 19 of the VMS properties were foreclosed in 1993, four
properties were foreclosed in 1994, five properties were foreclosed in 1995 and
two properties were foreclosed in 1996. VMS sold two properties during 1996. VMS
continues to own and operate 15 of the properties originally acquired.
In addition, the reorganization plan provided that, for both your
partnership and VMS National Residential Portfolio I, operating cash flow
distributions would be made first to the limited partners in an amount equal to
12% per year (on a noncumulative basis) of the contributed capital of the
limited partners; then, to the general partners, a subordinated incentive fee
equal to 10.45% of remaining operating cash flow; and finally, of the balance to
be distributed, 98% to the limited partners and 2% to the general partners.
If your partnership and VMS were liquidated, after payment of all
liabilities of VMS, the liquidation proceeds of VMS would be distributed as
follows: (1) first to the limited partners of your partnership and VMS National
Residential Portfolio I up to an amount equal to the aggregate capital
contributions of the limited partners; (2) then to the general partners of VMS
up to an amount equal to the aggregate capital contributions of the general
partners; (3) then, among the limited partners of your partnership and VMS
National Residential Portfolio I, any remaining proceeds up to an amount equal
to $62,000,000, allocated based on the participating interest of your
partnership and VMS National Residential Portfolio I in VMS; and (4) finally,
76% of any remaining proceeds to the limited partners and 24% to the general
partners of VMS.
Except as disclosed in this prospectus, your general partner (which is our
subsidiary) has not experienced any material adverse financial developments from
January 1, 1997 through the present.
Under your partnership's agreement of limited partnership, the term of the
partnership will continue until December 31, 2030, unless sooner terminated as
provided in the agreement or by law. Limited partners could, as an alternative
to tendering their units, take a variety of possible actions, including voting
to liquidate the partnership or amending the agreement of limited partnership to
authorize limited partners to cause the partnership to merge with another entity
or engage in a "roll-up" or similar transaction.
If VMS cannot refinance or repay its indebtedness at maturity in 2008, VMS
will be required to sell its properties and liquidate under the VMS plan of
reorganization.
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FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP
Under applicable law, your general partner (which is our subsidiary) is
accountable to your partnership as a fiduciary. Under your partnership's
agreement of limited partnership, the general partner will not incur any
liability to your partnership or any other partner for any mistakes or errors in
judgment or for any act or omission believed by it in good faith to be within
the scope of authority conferred upon it by your partnership's agreement of
limited partnership. As a result, unitholders might have a more limited right of
action in certain circumstances than they would have in the absence of such a
provision in your partnership's agreement of limited partnership. The general
partner of your partnership is a wholly owned subsidiary of AIMCO. See
"Conflicts of Interest and Transactions with Affiliates."
Your partnership will, to the extent permitted by law, indemnify and save
harmless the general partner against and from any personal loss, liability,
including attorneys' fees, or damage incurred by it as the result of any act or
omission in its capacity as general partner unless such loss, liability or
damage results from bad faith, breach of fiduciary duty, gross negligence or
intentional misconduct of the general partner. As part of its assumption of
liabilities in the consolidation, AIMCO will indemnify the general partner of
your partnership and their affiliates for periods prior to and following the
consolidation to the extent of the indemnity under the terms of your
partnership's agreement of limited partnership and applicable law.
Your partnership's agreement of limited partnership does not limit the
amount or type of insurance your partnership may purchase to cover the liability
of the general partners of your partnership.
DISTRIBUTIONS AND TRANSFERS OF UNITS
DISTRIBUTIONS
From 1996 through 2001, your partnership has paid no distributions. All of
the cash flow from your partnership is currently dedicated to the payment of
operating expenses, capital expenditures and debt service.
TRANSFERS
The units are not listed on any national securities exchange or quoted on
the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there
is no established public trading market for the units. Secondary sales activity
for the units has been limited and sporadic. The general partner of your
partnership monitors transfers of the units (a) because the admission of the
transferee as a substitute limited partner in your partnership require the
consent of the general partner of your partnership under your partnership's
agreement of limited partnership, and (b) in order to track compliance with safe
harbor provisions to avoid treatment as a "publicly traded partnership" for tax
purposes. However, the general partner of your partnership does not monitor or
regularly receive or maintain information regarding the prices at which
secondary sale transactions in the units have been effectuated. The general
partner of your partnership estimates, based solely on the transfer records of
your partnership (or your partnership's transfer agent), that the number of
units transferred in privately negotiated transactions (excluding transactions
believed to be between related parties, family members or the same beneficial
owner) was as follows:
NUMBER PERCENTAGE OF
OF OUTSTANDING NUMBER OF
YEAR UNITS UNITS TRANSACTIONS
---- ------ ------------- ------------
1997................................................ -- -- --
1998................................................ -- -- --
1999................................................ 18.49 6.79% 20
2000................................................ 11.99 4.40% 18
2001................................................ 6.33 2.32% 8
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BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP
Through subsidiaries, AIMCO currently owns, in the aggregate, approximately
a 16.17% interest in your partnership, including the interest held by us, as
general partner of your partnership. Except as set forth in this prospectus,
neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any
of its affiliates, (i) beneficially own or have a right to acquire any units,
(ii) have effected any transactions in the units in the past two years, or (iii)
have any contract, arrangement, understanding or relationship with any other
person with respect to any securities of your partnership, including, but not
limited to, contracts, arrangements, understandings or relationships concerning
transfer or voting thereof, joint ventures, loan or option arrangements, puts or
calls, guarantees of loans, guarantees against loss or the giving or withholding
of proxies.
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES
The following table shows, for each of the years indicated, compensation
paid to your general partner and its affiliates on a historical basis, and on a
pro forma basis assuming that all of the units sought in our offer had been
acquired at the beginning of each period:
HISTORICAL PRO FORMA
----------------------------------------------------- ----------------------------------------
PARTNERSHIP PROPERTY PARTNERSHIP PROPERTY
FEES AND MANAGEMENT FEES AND MANAGEMENT
YEAR EXPENSE FEES DISTRIBUTIONS TOTAL EXPENSE FEES DISTRIBUTIONS
---- ----------- ---------- ------------- ---------- ----------- ---------- -------------
1997................. $ 786,000 $1,013,000 $0 $1,799,000 $ 786,000 $1,013,000 $0
1998................. 544,000 1,122,000 0 1,666,000 544,000 1,122,000 0
1999................. 558,000 1,160,000 0 1,718,000 558,000 1,160,000 0
2000................. 656,000 1,238,000 0 1,894,000 656,000 1,238,000 0
2001................. 1,463,000 1,344,000 0 2,807,000 1,463,000 1,344,000 0
PRO FORMA
----------
YEAR TOTAL
---- ----------
1997................. $1,799,000
1998................. 1,666,000
1999................. 1,718,000
2000................. 1,894,000
2001................. 2,807,000
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THE OFFER
TERMS OF THE OFFER; EXPIRATION DATE
We are offering to acquire up to 120 units of your partnership (out of
255.42 units currently outstanding), for consideration per unit of (i) 64.50 OP
Units, (ii) $3,000, or (iii) any combination thereof. If you tender units
pursuant to our offer, you may choose to receive any of such forms of
consideration for your units or any combination of such forms of consideration.
The purchase price per unit will automatically be reduced by the aggregate
amount of distributions per unit, if any, made or declared by your partnership
to you on or after the commencement of our offer and prior to the date on which
we acquire your units pursuant to our offer.
Upon the terms and subject to the conditions of our offer set forth herein,
the AIMCO Operating Partnership will accept (and thereby purchase) units that
are validly tendered prior to the expiration of the offer and not withdrawn in
accordance with the procedures set forth in "-- Withdrawal Rights." Our offer
will expire at midnight, New York City time, on [ ], 2002, unless the
AIMCO Operating Partnership in its sole discretion, extends the offer. See
"-- Extension of Tender Period; Termination; Amendment" for a description of the
AIMCO Operating Partnership's right to extend the period of time during which
the offer is open and to amend or terminate the offer.
If, prior to the expiration of the offer, the AIMCO Operating Partnership
increases the offer consideration, everyone whose units are accepted in the
offer will receive the increased consideration, regardless of whether their
units were tendered before or after the increase in the offer consideration. The
AIMCO Operating Partnership will, upon the terms and subject to the conditions
of the offer, accept for payment and pay for all units validly tendered and not
withdrawn prior to the expiration of our offer (subject to proration as
described below), although you will be entitled to retain any distributions you
may have received after such date and prior to our commencement of this offer.
We intend to solicit any lender consents that may be required in connection
with our offer or any transfer of partnership interests in VMS, VMS National
Residential Portfolio I or your partnership or interests in any entity
controlling such partnerships. Our offer is not conditioned on obtaining such
lender consents.
Our offer is conditioned on the satisfaction of certain conditions. Our
offer is not conditioned upon any minimum amount of units being tendered. See
"-- Conditions of the Offer," which sets forth in full the conditions of our
offer. The AIMCO Operating Partnership reserves the right (but is not
obligated), in its sole discretion, to waive any or all of those conditions. If,
on or prior to the expiration of the offer, any or all of the conditions have
not been satisfied or waived, the AIMCO Operating Partnership reserves the right
to (i) decline to purchase any of the units tendered, terminate the offer and
return all tendered units, (ii) waive all the unsatisfied conditions and
purchase all units validly tendered, (iii) extend the offer and, subject to the
right of unitholders to withdraw units until the expiration of the offer, retain
the units that have been tendered during the period or periods for which the
offer is extended, and (iv) amend the offer.
For administrative purposes, the transfer of units tendered pursuant to our
offer will be deemed to take effect as of April 1, 2002 (subject to proration as
described below).
This offer is being mailed to the persons shown by your partnership's
records to have been limited partners or, in the case of units owned of record
by IRAs and qualified plans, beneficial owners of units, as of [ ],
2002.
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, the AIMCO
Operating Partnership will purchase by accepting for payment and will pay for
all units (subject to proration as described below) which are validly tendered
and not withdrawn prior to the expiration of the offer as promptly as
practicable following the expiration of the offer. A beneficial owner of units
whose units are owned of record by an individual retirement account or other
qualified plan will not receive direct payment of the offer
64
consideration. Instead, payment will be made to the custodian of such account or
plan. In all cases, payment for units purchased pursuant to the offer will be
made only after timely receipt by the Information Agent of a properly completed
and duly executed Letter of Transmittal and any other documents required by the
Letter of Transmittal. The offer consideration shall be reduced by any interim
distributions made by your partnership between the commencement and the
expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN
MAKING SUCH PAYMENT.
For purposes of the offer, the AIMCO Operating Partnership will be deemed
to have accepted for payment pursuant to the offer, and thereby purchased,
validly tendered units if, as and when the AIMCO Operating Partnership gives
verbal or written notice to the Information Agent of its acceptance of those
units for payment pursuant to the offer. Payment for units accepted for payment
pursuant to the offer will be made through the Information Agent, which will act
as agent for tendering unitholders for the purpose of receiving cash payments
from the AIMCO Operating Partnership and transmitting cash payments to tendering
unitholders. OP Units will be issued directly by the AIMCO Operating Partnership
to those unitholders who elect to receive OP Units pursuant to the offer.
If any tendered units are not accepted for payment for any reason, the
Letter of Transmittal with respect to such units not purchased may be destroyed
by the AIMCO Operating Partnership or its agent. If for any reason, acceptance
for payment of, or payment for, any units tendered pursuant to the offer is
delayed or the AIMCO Operating Partnership is unable to accept for payment,
purchase or pay for units tendered pursuant to the offer, then, without
prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of
the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO
Operating Partnership retain tendered units. However, any tendered units may be
withdrawn at any time prior to our accepting them for payment. The AIMCO
Operating Partnership has an obligation under Rule 14e-1(c) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
The AIMCO Operating Partnership reserves the right to transfer or assign,
in whole or in part, to one or more of its affiliates, the right to purchase
units tendered pursuant to the offer, but no such transfer or assignment will
relieve the AIMCO Operating Partnership of its obligations under the offer or
prejudice your right to receive payment for units validly tendered and accepted
for payment pursuant to the offer.
PROCEDURE FOR TENDERING UNITS
VALID TENDER
To validly tender units pursuant to the offer, a properly completed and
duly executed Letter of Transmittal and any other documents required by such
Letter of Transmittal must be received by the Information Agent, at its address
set forth on the back cover of this prospectus, on or prior to the expiration of
the offer. You may tender all or any portion of your units.
SIGNATURE REQUIREMENTS
IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE
UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE
GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are
tendered for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc. or a
commercial bank, savings bank, credit union, savings and loan association or
trust company having an office, branch or agency in the United States (each an
"Eligible Institution"), no signature guarantee is required on the Letter of
Transmittal. However, in all other cases, all signatures on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
In order to participate in the offer, you must validly tender and not
withdraw your units prior to the expiration of the offer.
65
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
APPOINTMENT AS PROXY
By executing the Letter of Transmittal, you will irrevocably appoint the
AIMCO Operating Partnership and its designees as your proxies (in the manner set
forth in the Letter of Transmittal), each with full power of substitution, to
the fullest extent of your rights with respect to your units tendered and
accepted for payment by the AIMCO Operating Partnership. Each such proxy shall
be considered coupled with an interest in the tendered units. Such appointment
will be effective when, and only to the extent that, the AIMCO Operating
Partnership accepts the tendered units for payment. Upon such acceptance for
payment, all prior proxies given by you with respect to such units will, without
further action, be revoked, and no subsequent proxies may be given (and if given
will not be effective). The AIMCO Operating Partnership and the designees of the
AIMCO Operating Partnership will, as to those units, be empowered to exercise
all of your voting and other rights as they, in their sole discretion, may deem
proper at any meeting of unitholders, by written consent or otherwise. The AIMCO
Operating Partnership reserves the right to require that, in order for units to
be deemed validly tendered, immediately upon the AIMCO Operating Partnership's
acceptance for payment for the units, the AIMCO Operating Partnership must be
able to exercise full voting rights with respect to the units, including voting
at any meeting of unitholders then scheduled or acting by written consent
without a meeting. By executing the Letter of Transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with the directions of
the AIMCO Operating Partnership. The proxy and power of attorney granted to the
AIMCO Operating Partnership upon your execution of the Letter of Transmittal
will remain effective and be irrevocable for a period of ten years following the
termination of the offer.
POWER OF ATTORNEY
By executing a Letter of Transmittal, you also irrevocably constitute and
appoint the AIMCO Operating Partnership and its managers and designees as your
attorneys-in-fact, each with full power of substitution, to the full extent of
your rights with respect to the units tendered by you and accepted for payment
by the AIMCO Operating Partnership. Such appointment will be effective when, and
only to the extent that, the AIMCO Operating Partnership pays for your units.
You agree not to exercise any rights pertaining to the tendered units without
the prior consent of the AIMCO Operating Partnership. Upon such payment, all
prior powers of attorney granted by you with respect to such units will, without
further action, be revoked, and no subsequent powers of attorney may be granted
(and if granted will not be effective). Pursuant to such appointment as
attorneys-in-fact, the AIMCO Operating Partnership and its managers and
designees each will have the power, among other things, (i) to transfer
ownership of such units on the partnership books maintained by your general
partner (which is our subsidiary) (and execute and deliver any accompanying
evidences of transfer and authenticity any of them may deem necessary or
appropriate in connection therewith), (ii) upon receipt by the Information Agent
of the offer consideration, to become a substituted limited partner, to receive
any and all distributions made by your partnership on or after the date on which
the AIMCO Operating Partnership acquires such units, and to receive all benefits
and otherwise exercise all rights of beneficial ownership of such units in
accordance with the terms of our offer, (iii) to execute and deliver to the
general partner of your partnership a change of address form instructing the
general partner to send any and all future distributions to which the AIMCO
Operating Partnership is entitled pursuant to the terms of the offer in respect
of tendered units to the address specified in such form, and (iv) to endorse any
check payable to you or upon your order representing a distribution to which the
AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in
each case, in your name and on your behalf.
66
ASSIGNMENT OF INTEREST IN FUTURE DISTRIBUTIONS AND ALL OTHER RIGHTS, ETC.
If you tender units, you will agree to irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, the AIMCO Operating Partnership,
all of your right, title and interest in and to such units tendered that are
accepted for payment pursuant to the offer, including, without limitation, (i)
all of your interest in the capital of your partnership, and interest in all
profits, losses and distributions of any kind to which you shall at any time be
entitled in respect of the units; (ii) all other payments, if any, due or to
become due to you in respect of the units, under or arising out of your
partnership's agreement of limited partnership, whether as contractual
obligations, damages, insurance proceeds, condemnation awards or otherwise;
(iii) all of your claims, rights, powers, privileges, authority, options,
security interests, liens and remedies, if any, under or arising out of your
partnership's agreement of limited partnership or your ownership of the units,
including, without limitation, all voting rights, rights of first offer, first
refusal or similar rights, and rights to be substituted as a limited partner of
your partnership; and (iv) all of your present and future claims, if any,
against your partnership or your partners under or arising out of your
partnership's agreement of limited partnership for monies loaned or advanced,
for services rendered, for the management of your partnership or otherwise.
ELECTION OF CONSIDERATION
You may elect to receive OP Units or cash pursuant to our offer, by so
indicating in the appropriate space on the Letter of Transmittal. In the event
that you tender units but do not indicate on the Letter of Transmittal which
type of consideration you want, you will receive cash in exchange for your
units.
DETERMINATION OF VALIDITY; REJECTION OF UNITS; WAIVER OF DEFECTS; NO
OBLIGATION TO GIVE NOTICE OF DEFECTS
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tender of units pursuant to the offer
will be determined by the AIMCO Operating Partnership, in its sole discretion,
which determination shall be final and binding on all parties. The AIMCO
Operating Partnership reserves the absolute right to reject any or all tenders
of any particular unit determined by it not to be in proper form or if the
acceptance of or payment for that unit may, in the opinion of the AIMCO
Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership
also reserves the absolute right to waive or amend any of the conditions of the
offer that it is legally permitted to waive as to the tender of any particular
unit and to waive any defect or irregularity in any tender with respect to any
particular unit. The AIMCO Operating Partnership's interpretation of the terms
and conditions of the offer (including the letters of transmittal) will be final
and binding on all parties. No tender of units will be deemed to have been
validly made unless and until all defects and irregularities have been cured or
waived. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in the tender of any units or will incur any liability for
failure to give any such notification.
BACKUP FEDERAL INCOME TAX WITHHOLDING
To prevent the possible application of back-up Federal income tax
withholding of 30% with respect to payment of the offer consideration, you may
have to provide the AIMCO Operating Partnership with your correct taxpayer
identification number. See the instructions to the Letter of Transmittal.
FIRPTA WITHHOLDING
To prevent the withholding of Federal income tax in an amount equal to 10%
of the amount realized pursuant to the offer, you must certify under penalty of
perjury that you are not a foreign person. See the instructions to the Letter of
Transmittal and "United States Federal Income Tax Consequences."
67
TRANSFER TAXES
The amount of any transfer taxes (whether imposed on the registered holder
of units or any person) payable on account of the transfer to such person will
be deducted from the purchase price unless satisfactory evidence of the such
taxes or exemption therefrom is submitted.
BINDING AGREEMENT
If you tender units pursuant to any of the procedures described above, the
acceptance for payment of such units will constitute a binding agreement between
you and the AIMCO Operating Partnership on the terms set forth in this
Prospectus Supplement.
WITHDRAWAL RIGHTS
Tenders of units pursuant to the offer may be withdrawn at any time prior
to our acceptance of such units for payment.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent at its address set forth on the back
cover of this prospectus. Any such notice of withdrawal must specify the name of
the person who tendered, the number of units to be withdrawn and the name of the
registered holder of such units, if different from the person who tendered. In
addition, the notice of withdrawal must be signed by the person(s) who signed
the Letter of Transmittal in the same manner as the Letter of Transmittal was
signed.
If purchase of, or payment for, units is delayed for any reason or if the
AIMCO Operating Partnership is unable to purchase or pay for units for any
reason, then, without prejudice to the AIMCO Operating Partnership's rights
under the offer, tendered units may be retained by the Information Agent and may
not be withdrawn, except to the extent that participants are entitled to
withdrawal rights as set forth herein; subject, however, to the AIMCO Operating
Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to
pay the offer consideration in respect of units tendered or return those units
promptly after termination or withdrawal of the offer.
Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the offer.
All questions as to the validity and form (including time of receipt) of
notices of withdrawal will be determined by the AIMCO Operating Partnership, in
its sole discretion, which determination shall be final and binding on all
parties. Neither the AIMCO Operating Partnership, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
EXTENSION OF TENDER PERIOD; SUBSEQUENT OFFERING PERIOD; TERMINATION; AMENDMENT
The AIMCO Operating Partnership expressly reserves the right, in its sole
discretion, at any time and from time to time, (i) to extend the period of time
during which the offer is open and thereby delay acceptance for payment of, and
for, any units, (ii) to terminate the offer and not accept for payment any units
not theretofore accepted for payment or paid for if any of the conditions to the
offer are not satisfied or if any event occurs that might reasonably be expected
to result in a failure to satisfy such conditions, (iii) upon the occurrence of
any of the conditions specified in "-- Conditions of the Offer," to delay the
acceptance for payment of, or for, any units not already accepted for payment or
paid for and (iv) to amend the offer in any respect (including, without
limitation, increasing or decreasing the number of Preferred OP Units or OP
Units, or the amount of cash offered, eliminating any of the alternative types
of consideration being offered, or increasing or decreasing the percentage of
outstanding units being sought). Notice of any such extension, termination or
amendment will promptly be disseminated in a manner reasonably designed to
inform unitholders of such change. In the case of an extension of the offer, the
extension will be followed by a press release or public announcement which will
be issued no later than
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9:00 a.m., New York City time, on the next business day after the scheduled
expiration date of the offer, in accordance with Rule 14e-1(d) under the
Exchange Act.
The offer may be extended or delayed and no payment will be made in respect
of tendered units until the expiration of the offer and the acceptance of units
for payment. If the AIMCO Operating Partnership extends the offer, or if the
AIMCO Operating Partnership (whether before or after its acceptance for payment
of units) is delayed in its payment for units or is unable to pay for units
pursuant to the offer for any reason, then, without prejudice to the AIMCO
Operating Partnership's rights under the offer, the Information Agent may retain
tendered units and those units may not be withdrawn except to the extent
participants are entitled to withdrawal rights as described in "-- Withdrawal
Rights;" subject, however, to the AIMCO Operating Partnership's obligation,
pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer
consideration in respect of units tendered or return those units promptly after
termination or withdrawal of the offer.
Pursuant to Rule 14d-11 under the Exchange Act, subsequent offering periods
may be provided in tender offers for "any and all" outstanding units of a
partnership. A subsequent offering period is an additional period of from three
to twenty business days following the expiration date of the offer, including
any extensions, in which limited partners may continue to tender units not
tendered in the offer for the offer price. Because of the remote possibility
that we may purchase fewer than all units tendered, a subsequent offering period
is not available to us.
If the AIMCO Operating Partnership makes a material change in the terms of
the offer, or if it waives a material condition to the offer, the AIMCO
Operating Partnership will extend the offer and disseminate additional tender
offer materials to the extent required by Rule 14e-1 under the Exchange Act. The
minimum period during which the offer must remain open following any material
change in the terms of the offer, other than a change in price or a change in
percentage of securities sought or a change in any dealer's soliciting fee, will
depend upon the facts and circumstances, including the materiality of the
change. With respect to a change in price or, subject to certain limitations, a
change in the percentage of securities sought or a change in any dealer's
soliciting fee, a minimum of ten business days from the date of such change is
generally required to allow for adequate dissemination to participants.
Accordingly, if prior to the expiration of the offer, the AIMCO Operating
Partnership increases (other than increases of not more than two percent of the
outstanding units) or decreases the number of units being sought, or increases
or decreases the consideration offered pursuant to the offer, and if the offer
is scheduled to expire at any time earlier than the tenth business day from the
date that notice of such increase or decrease is first published, sent or given
to unitholders, the offer will be extended at least until the expiration of such
ten business days. As used herein, "business day" means any day other than a
Saturday, Sunday or a Federal holiday, and consists of the time period from
12:01 a.m. through 12:00 midnight, Eastern time.
PRORATION
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer does not exceed 47.21% of the outstanding units, the
AIMCO Operating Partnership, upon the terms and subject to the conditions of the
offer, will purchase all such units so tendered and not withdrawn.
If the number of units properly tendered and not withdrawn prior to the
expiration of the offer exceeds 47.21% of the outstanding units, the AIMCO
Operating Partnership, upon the terms and subject to the conditions of the
offer, will accept for purchase all units properly tendered and not withdrawn
prior to the expiration of the offer on a pro rata basis.
Following the expiration of the offer, the AIMCO Operating Partnership may
renew the offer one or more times on the same terms as described in this
prospectus. If the number of units properly tendered and not withdrawn prior to
the expiration of any such renewal (together with units previously purchased in
the offer) is 47.21% or less, the AIMCO Operating Partnership will purchase such
units so tendered and not withdrawn. If the number of units in your partnership
properly tendered and not withdrawn prior to the expiration of any such renewal
(together with any units previously purchased in this offer) is greater than
69
47.21%, the AIMCO Operating Partnership will purchase units in the order of
priority described in the preceding paragraph.
In addition, if units are validly tendered and not properly withdrawn prior
to the expiration date and the purchase of all such units would result in (i) a
"Rule 13e-3 transaction" within the meaning of the Securities Exchange Act of
1934, or (ii) there being fewer than 320 unitholders, we will not purchase any
units tendered in the offer.
In the event that proration of tendered units is required, the AIMCO
Operating Partnership will determine the final proration factor as promptly as
practicable after the expiration of the offer or any renewal of the offer.
FRACTIONAL OP UNITS
We will issue fractional OP Units, if necessary.
FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP
As described above under "Background and Reasons for the Offer," the AIMCO
Operating Partnership owns the general partner of your partnership and thereby
controls the management of your partnership. In addition, AIMCO owns the company
that manages the VMS properties. The AIMCO Operating Partnership currently
intends that, upon consummation of the offer, your partnership will continue its
business and operations substantially as they are currently being conducted. The
offer is not expected to have any effect on your partnership's financial
condition or results of operations.
After the completion or termination of the offer, the AIMCO Operating
Partnership and its affiliates may acquire additional units or sell units. Any
acquisition may be made through private purchases, market purchases or
transactions effected on a so-called partnership trading board, through one or
more future tender or exchange offers, by merger, consolidation or by any other
means deemed advisable. Any acquisition may be at a price higher or lower than
the price to be paid for the units purchased pursuant to this offer, and may be
for cash, limited partnership interests in the AIMCO Operating Partnership or
other consideration. The AIMCO Operating Partnership also may consider selling
some or all of the units it acquires pursuant to the offer to persons not yet
determined, which may include affiliates of the AIMCO Operating Partnership. The
AIMCO Operating Partnership may also buy the VMS properties, although it has no
present intention to do so. There can be no assurance, however, that the AIMCO
Operating Partnership will initiate or complete, or will cause your partnership
to initiate or complete, any subsequent transaction during any specific time
period following the expiration of the offer or at all.
Except as set forth herein, we do not have any present plans or proposals
which relate to or would result in an extraordinary transaction, such as a
merger, reorganization or liquidation, involving your partnership or VMS; a
purchase or sale or transfer of a material amount of your partnership's assets;
any changes in composition of your partnership's senior management or personnel
or their compensation; any changes in your partnership's present capitalization,
indebtedness or distribution policy; or any other material changes in your
partnership's structure or business. We or our affiliates may loan funds to your
partnership which may be secured by the VMS properties. If any such loans are
made, upon default of such loans, we or our affiliates could seek to foreclose
on the loan and related mortgage or security interest. However, we expect that,
consistent with your general partner's fiduciary obligations, the general
partner will seek and review opportunities, including opportunities identified
by us, to engage in transactions which could benefit your partnership, such as
sales or refinancings of assets or a combination of the partnership with one or
more other entities, with the objective of seeking to maximize returns to
limited partners.
VOTING BY THE AIMCO OPERATING PARTNERSHIP
If the AIMCO Operating Partnership acquires a substantial number of units
pursuant to the offer, the AIMCO Operating Partnership may be in a position to
influence voting decisions with respect to your
70
partnership. Under your partnership's agreement of limited partnership, holders
of outstanding units are entitled to take action with respect to a variety of
matters, including dissolution and most types of amendments to your
partnership's agreement of limited partnership. See "Comparison of Your Units
and AIMCO OP Units -- Voting Rights."
DISSENTERS' RIGHTS
Neither your partnership's agreement of limited partnership nor applicable
law provides any right for you to have your units appraised or redeemed in
connection with or as a result of the offer. In addition, we are not extending
appraisal rights in connection with the offer. You have the opportunity to make
your own decision on whether to tender your units in the offer.
No provisions have been made with regard to the offer to allow you or other
limited partners to inspect the books and records of your partnership or to
obtain counsel or appraisal services at our expense or at the expense of your
partnership. However, as described under "Comparison of Your Partnership and the
AIMCO Operating Partnership -- Review of Investor Lists," you have the right
under your partnership's agreement of limited partnership to obtain a list of
the limited partners.
CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the offer, the AIMCO Operating
Partnership shall not be required to accept for payment and pay for any units
tendered pursuant to the offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend the offer if at any time from or
after the date of this prospectus and at or before the expiration date of the
offer, including any extension thereof, any of the following shall occur:
- any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the
business, properties, assets, liabilities, indebtedness, capitalization,
condition (financial or otherwise), operations, licenses or franchises,
management contract, or results of operations or prospects of your
partnership or local markets in which your partnership owns or operates
its property, including any fire, flood, natural disaster, casualty loss,
or act of God that is or could reasonably be expected to be materially
adverse to your partnership or the value of your units to the AIMCO
Operating Partnership, or the AIMCO Operating Partnership shall have
become aware of any facts relating to your partnership, its indebtedness
or its operations which has had or could reasonably be expected to have a
material adverse effect on the value of your partnership or the value of
your units to the AIMCO Operating Partnership; or
- there shall have occurred (i) any general suspension of trading in, or
limitation on prices for, securities on any national securities exchange
or the over-the-counter market in the United States, (ii) a decline in
the closing share price of AIMCO's Class A Common Stock of more than
5.0%, measured from the close on the last trading day preceding the date
of this offer and the close on the last trading day preceding the
expiration of this offer, (iii) any extraordinary or material adverse
change in the financial, real estate or money markets or major equity
security indices in the United States such that there shall have occurred
at least a 25 basis point increase in LIBOR, or at least a 5.0% decrease
in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the
10-year Treasury Bond or the price of the 30-year Treasury Bond, in each
case, measured from the close on the last trading day preceding the date
of this offer and the close on the last trading day preceding the
expiration of this offer, (iv) any material adverse change in the
commercial mortgage financing markets, (v) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the
United States, (vi) acts of terrorism or a commencement of a war, armed
hostilities or other national or international calamity directly or
indirectly involving the United States, (vii) any limitation (whether or
not mandatory) by any governmental authority on, or any other event which
could reasonably be expected to affect the extension of credit by banks
or other lending institutions, or (viii) in the case of any of the
foregoing existing at the time of the commencement of the offer, a
material acceleration or worsening thereof; or
71
- there shall have been threatened in writing, instituted or pending any
action, proceeding, application or counterclaim by any Federal, state,
local or foreign government, governmental authority or governmental
agency, or by any other person, before any governmental authority, court
or regulatory or administrative agency, authority or tribunal, which (i)
challenges or seeks to challenge the acquisition by the AIMCO Operating
Partnership of the units, restrains, prohibits or delays the making or
consummation of the offer, prohibits the performance of any of the
contracts or other arrangements entered into by the AIMCO Operating
Partnership (or any affiliates of the AIMCO Operating Partnership) seeks
to obtain any material amount of damages as a result of the transactions
contemplated by the offer, (ii) seeks to make the purchase of, or payment
for, some or all of the units pursuant to the offer illegal or results in
a delay in the ability of the AIMCO Operating Partnership to accept for
payment or pay for some or all of the units, (iii) seeks to prohibit or
limit the ownership or operation by AIMCO or any of its affiliates of the
entity serving as your general partner (which is our subsidiary) or to
remove such entity as the general partner of your partnership, or seeks
to impose any material limitation on the ability of the AIMCO Operating
Partnership or any of its affiliates to conduct your partnership's
business or own such assets, (iv) seeks to impose material limitations on
the ability of the AIMCO Operating Partnership or any of its affiliates
to acquire or hold or to exercise full rights of ownership of the units
including, but not limited to, the right to vote the units purchased by
it on all matters properly presented to unitholders or (v) could
reasonably be expected to result in a material diminution in the value of
your partnership or a limitation of the benefits expected to be derived
by the AIMCO Operating Partnership as a result of the transactions
contemplated by the offer or the value of units to the AIMCO Operating
Partnership; or
- there shall be any action taken, or any statute, rule, regulation, order
or injunction shall be sought, proposed, enacted, promulgated, entered,
enforced or deemed applicable to the offer, the AIMCO Operating
Partnership, its general partner or any of its affiliates or any other
action shall have been taken, proposed or threatened, by any government,
governmental authority or court, that, directly or indirectly, could
reasonably be expected to result in any of the consequences referred to
in clauses (i) through (v) of the immediately preceding paragraph; or
- your partnership shall have (i) changed, or authorized a change of, its
units or your partnership's capitalization, (ii) issued, distributed,
sold or pledged, or authorized, proposed or announced the issuance,
distribution, sale or pledge of (A) any equity interests (including,
without limitation, units), or securities convertible into any such
equity interests or any rights, warrants or options to acquire any such
equity interests or convertible securities, or (B) any other securities
in respect of, in lieu of, or in substitution for units outstanding on
the date hereof, (iii) purchased or otherwise acquired, or proposed or
offered to purchase or otherwise acquire, any outstanding units or other
securities, (iv) declared or paid any dividend or distribution on any
units or issued, authorized, recommended or proposed the issuance of any
other distribution in respect of the units, whether payable in cash,
securities or other property, (v) authorized, recommended, proposed or
announced an agreement, or intention to enter into an agreement, with
respect to any merger, consolidation, liquidation or business
combination, any acquisition or disposition of a material amount of
assets or securities, or any release or relinquishment of any material
contract rights, or any comparable event, not in the ordinary course of
business, (vi) taken any action to implement such a transaction
previously authorized, recommended, proposed or publicly announced, (vii)
issued, or announced its intention to issue, any debt securities, or
securities convertible into, or rights, warrants or options to acquire,
any debt securities, or incurred, or announced its intention to incur,
any debt other than in the ordinary course of business and consistent
with past practice, (viii) authorized, recommended or proposed, or
entered into, any transaction which has or could reasonably be expected
to have an adverse affect on the value of your partnership or the units,
(ix) proposed, adopted or authorized any amendment of its organizational
documents, (x) agreed in writing or otherwise to take any of the
foregoing actions, or (xi) been notified that any debt of your
partnership or any of its subsidiaries secured by any of its or their
assets is in default or has been accelerated (any changes
72
to the offer resulting from the conditions set forth in this paragraph
will most likely involve a change in the amount or terms of the
consideration offered or the termination of the offer); or
- a tender or exchange offer for any units shall have been commenced or
publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall
have been publicly disclosed or the AIMCO Operating Partnership shall
have otherwise learned that (i) any person or group shall have acquired
or proposed or be attempting to acquire beneficial ownership of more than
four percent of the units, or shall have been granted any option, warrant
or right, conditional or otherwise, to acquire beneficial ownership of
more than four percent of the units, or (ii) any person or group shall
have entered into a definitive agreement or an agreement in principle or
made a proposal with respect to a merger, consolidation, purchase or
lease of assets, debt refinancing or other business combination with or
involving your partnership; or
- the AIMCO Operating Partnership shall not have adequate cash or financing
commitments available to pay the cash portion of the offer consideration,
which is the result of events or circumstances beyond the reasonable
control of the AIMCO Operating Partnership; or
- the offer to purchase could reasonably be expected to have an adverse
effect on AIMCO's status as a REIT; or
- there would be fewer than 320 unitholders as a result of the consummation
of the offer.
The foregoing conditions are for the sole benefit of the AIMCO Operating
Partnership and may be asserted by the AIMCO Operating Partnership regardless of
the circumstances giving rise to such conditions or may be waived by the AIMCO
Operating Partnership in whole or in part at any time and from time to time in
its reasonable discretion at or before the expiration date of the offer,
including any extension thereof. The failure by the AIMCO Operating Partnership
at any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right, the waiver of any such right with respect to any particular
facts or circumstances shall not be deemed a waiver with respect to any other
facts or circumstances and each right shall be deemed a continuing right which
may be asserted at any time and from time to time.
EFFECTS OF THE OFFER
FUTURE CONTROL BY AIMCO
Because the general partner of your partnership is a subsidiary of AIMCO,
AIMCO has control over the management of your partnership. If the AIMCO
Operating Partnership acquires units in the offer, AIMCO will increase its
ability to influence voting decisions with respect to your partnership. However,
we will not be able to control voting decisions unless we acquire more units in
another transaction. Furthermore, in the event that the AIMCO Operating
Partnership acquires a substantial number of units pursuant to the offer,
removal of the general partner of your partnership (which general partner is
controlled by AIMCO) without AIMCO's consent may become more difficult or
impossible. AIMCO also controls the company that manages the VMS properties. In
the event that the AIMCO Operating Partnership acquires a substantial number of
units pursuant to the offer, removal of the property manager may become more
difficult or impossible.
EFFECT ON TRADING MARKET; REGISTRATION UNDER SECTION 12(G) OF THE EXCHANGE ACT
If a substantial number of units are purchased pursuant to the offer, the
result will be a reduction in the number of limited partners in your
partnership. In the case of certain kinds of equity securities, a reduction in
the number of security holders might be expected to result in a reduction in the
liquidity and volume of activity in the trading market for the security. In this
case, however, there is no established public trading market for the units and,
therefore, the AIMCO Operating Partnership does not believe a reduction in the
number of limited partners will materially further restrict your ability to find
purchasers for your units through secondary market transactions. The units,
together with the units of VMS National
73
Residential Portfolio I, the other participant in VMS, are registered under
Section 12(g) of the Exchange Act, which means, among other things, that VMS is
required to file periodic reports with the SEC and to comply with the SEC's
proxy rules. We are simultaneously offering to purchase units of VMS National
Residential Portfolio I. We do not expect or intend that consummation of the
offers will cause the units to cease to be registered under Section 12(g) of the
Exchange Act. If the units were to be held by fewer than 300 persons, VMS could
apply to de-register the units under the Exchange Act. Your partnership and VMS
National Residential Portfolio I together currently have 1,003 limited partners.
If units are tendered which would result in fewer than 320 unitholders in your
partnership and VMS National Residential Portfolio I, we will not purchase any
units tendered in the offer.
DISTRIBUTIONS TO THE AIMCO OPERATING PARTNERSHIP
As a result of the offer, the AIMCO Operating Partnership, in its capacity
as a limited partner of your partnership, will participate in any subsequent
distributions to limited partners to the extent of its interest in your
partnership, including the units purchased pursuant to this offer.
PARTNERSHIP BUSINESS
This offer will not affect the operation of the VMS properties. The AIMCO
Operating Partnership will continue to control the general partner of your
partnership and the property manager will remain the same. Consummation of the
offer will not affect your partnership's agreement of limited partnership, the
financial condition or results of operations of your partnership, the business
and properties owned, the management compensation payable to your general
partner (which is our subsidiary) or its affiliates or any other matter relating
to your partnership, except it would result in the AIMCO Operating Partnership
substantially increasing its ownership of units of your partnership. We will
receive future distributions from your partnership for any units we purchase.
CERTAIN LEGAL MATTERS
GENERAL
Except as set forth in this section, the AIMCO Operating Partnership is
not, based on information provided by your general partner (which is our
subsidiary), aware of any licenses or regulatory permits that would be material
to the business of your partnership, taken as a whole, and that might be
adversely affected by the AIMCO Operating Partnership's acquisition of units as
contemplated herein, or any filings, approvals or other actions by or with any
domestic or foreign governmental authority or administrative or regulatory
agency that would be required prior to the acquisition of units by the AIMCO
Operating Partnership pursuant to the offer as contemplated herein, other than
the filing with the SEC of a Tender Offer Statement on Schedule TO and any
amendments required thereto. While there is no present intent to delay the
purchase of units tendered pursuant to the offer pending receipt of any such
additional approval or the taking of any such action, there can be no assurance
that any such additional approval or action, if needed, would be obtained
without substantial conditions or that adverse consequences might not result to
your partnership's business, or that certain parts of your partnership's
business might not have to be disposed of or other substantial conditions
complied with in order to obtain such approval or action, any of which could
cause the AIMCO Operating Partnership to elect to terminate the offer without
purchasing units hereunder. The AIMCO Operating Partnership's obligation to
purchase and pay for units is subject to certain conditions, including
conditions related to the legal matters discussed in this section.
ANTITRUST
The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition
of units contemplated by this offer.
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MARGIN REQUIREMENTS
The units are not "margin securities" under the regulations of the Board of
Governors of the Federal Reserve System and, accordingly, those regulations
generally are not applicable to this offer.
STATE LAWS
Except as set forth herein, the AIMCO Operating Partnership is not aware of
any jurisdiction in which the making of the offer is not in compliance with
applicable law. If the AIMCO Operating Partnership becomes aware of any
jurisdiction in which the making of the offer would not be in compliance with
applicable law, the AIMCO Operating Partnership will make a good faith effort to
comply with any such law. If, after such good faith effort, the AIMCO Operating
Partnership cannot comply with any such law, limited partners residing in such
jurisdiction will only be entitled to receive cash for their units. In those
jurisdictions whose securities or blue sky laws require the offer to be made by
a licensed broker or dealer, the offer shall be made on behalf of the AIMCO
Operating Partnership, if at all, only by one or more registered brokers or
dealers licensed under the laws of that jurisdiction.
If you are a resident of the State of [ ] or
[ ], the state securities commission in your state has not
approved the offering of OP Units pursuant to this prospectus. Accordingly, you
are only entitled to exchange your units for cash.
CERTAIN LITIGATION
Your partnership or VMS may be a party to a variety of legal proceedings
related to the VMS properties, arising in the ordinary course of the business,
which are not expected to have a material adverse effect on your partnership or
VMS.
FEES AND EXPENSES
The AIMCO Operating Partnership will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of units pursuant to the
offer. The AIMCO Operating Partnership has retained River Oaks Partnership
Services, Inc. to act as Information Agent in connection with the offer. The
Information Agent may contact holders of units by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers and other
nominees to forward materials relating to the offer to beneficial owners of the
units. The AIMCO Operating Partnership will pay the Information Agent reasonable
and customary compensation for its services in connection with the offer, plus
reimbursement for out-of-pocket expenses, and will indemnify the Information
Agent against certain liabilities and expenses in connection therewith,
including liabilities under the Federal securities laws. The AIMCO Operating
Partnership will also pay all costs and expenses of printing and mailing this
prospectus, the Letter of Transmittal and the legal and accounting fees in
connection with this offer. The AIMCO Operating Partnership estimates that its
total costs and expenses in making the offer (excluding the purchase price of
the units) will be approximately $116,033.
ACCOUNTING TREATMENT
Upon consummation of the offer, the AIMCO Operating Partnership will
account for its investment in the units acquired in the offer under the purchase
method of accounting. There will be no effect on the accounting treatment of
your partnership as a result of the offer.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material Federal income tax consequences
of:
- the offer to (i) persons who tender some or all of their units in
exchange for OP Units pursuant to the offer, (ii) persons who tender some
or all of their units for cash pursuant to the offer and (iii) persons
who do not tender any of their units pursuant to the offer;
- acquiring, holding, exchanging or otherwise disposing of OP Units; and
- acquiring, holding, exchanging or otherwise disposing of Class A Common
Stock (the "AIMCO Stock").
This summary is based upon the Internal Revenue Code of 1986, as amended ("the
Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this offer and all of which are subject to
differing interpretations or change, possibly with retroactive effect. This
summary is also based on the assumptions that AIMCO, the AIMCO Operating
Partnership, the limited liability companies and limited partnerships in which
they own controlling interests (collectively, the "Subsidiary Partnerships") and
your partnership will be operated in accordance with their respective
organizational documents and partnership agreements. This summary is for general
information only and does not purport to discuss all aspects of Federal income
taxation which may be important to you in light of your specific investment or
tax circumstances, or if you are subject to special tax rules (for example, if
you are a financial institution, broker-dealer, insurance company, or, except to
the extent discussed below, tax-exempt organization or foreign investor, as
determined for Federal income tax purposes). This summary assumes that your
units, any OP Units that you receive in the offer, and any AIMCO Stock received
in exchange for OP Units are capital assets (generally, property held for
investment). No advance ruling has been or will be sought from the IRS regarding
any matter discussed in this registration statement. Other than as stated under
"-- Tax Opinions" below, Skadden, Arps, Slate, Meagher & Flom LLP ("Special Tax
Counsel") has not rendered any legal opinion regarding the tax consequences
related to the offer, AIMCO, the AIMCO Operating Partnership or an investment in
AIMCO or the AIMCO Operating Partnership in connection with this registrations
statement. No assurances can be given that the IRS would not assert, or that a
court would not sustain, a position contrary to any of the tax aspects set forth
below.
The Federal income tax treatment of an offeree participating in the offer,
a holder of OP Units and a holder of AIMCO Stock depends in some instances on
determinations of fact and interpretations of complex provisions of Federal
income tax law for which no clear precedent or authority may be available.
Accordingly, you should consult your tax advisor regarding the Federal, state,
local and foreign tax consequences to you of selling or exchanging units
pursuant to the offer, of a decision not to sell or exchange units pursuant to
the offer, acquiring, holding, exchanging, or otherwise disposing of OP Units,
acquiring, holding, exchanging, or otherwise disposing of AIMCO Stock and of
AIMCO's election to be subject to tax, for Federal income tax purposes, as a
real estate investment trust.
TAX OPINIONS
Special Tax Counsel has delivered an opinion letter with regard to the
material Federal income tax consequences of the offer. The opinion letter of
Special Tax Counsel is filed as an exhibit to this registration statement. You
may obtain a copy of such opinion letter by sending a written request to the
AIMCO Operating Partnership.
The specific Federal income tax opinions that Special Tax Counsel has
provided are:
1. Commencing with AIMCO's initial taxable year ended December 31,
1994, AIMCO was organized in conformity with the requirements for
qualification as a REIT under the Code, and its actual method of operation
has enabled, and its proposed method of operation will enable, AIMCO to
meet the requirements for qualification and taxation as a REIT. AIMCO's
qualification and taxation as a REIT depend upon its ability to meet,
through actual annual operating results, certain
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requirements, including requirements relating to distribution levels and
diversity of stock ownership, and the various qualification tests imposed
under the Code, the results of which have been represented by the AIMCO's
officers and will not be reviewed by Special Tax Counsel. No assurance can
be given that the actual results of AIMCO's operations for any taxable year
satisfy the requirements for taxation as a REIT under the Code. Such
requirements are discussed in more detail under the heading "Requirements
for Qualification."
2. The AIMCO Operating Partnership will be treated as a partnership
and not as an association taxable as a corporation for Federal income tax
purposes.
3. You will not recognize gain or loss for Federal income tax
purposes when you exchange your units solely for OP Units. If, immediately
prior to such exchange, the amount of your partnership's liabilities
allocable to the units you transfer to the AIMCO Operating Partnership
exceeds the amount of the AIMCO Operating Partnership's liabilities
allocable to you immediately after the exchange, you will receive a deemed
distribution in an amount equal to such liability relief and will recognize
gain for Federal income tax purposes to the extent that the amount of such
deemed distribution exceeds your aggregate adjusted tax basis in your OP
Units.
4. If you exchange your units for cash and OP Units, you will be
treated for Federal income tax purposes as selling some of your units for
cash in a taxable sale and contributing some of your units for OP Units in
a tax-free exchange. With respect to the units that you will be treated as
selling for cash, you will be taxed as described in paragraph number five
below. With respect to the units that you will be treated as exchanging for
OP Units, you will be taxed as described in paragraph number three above.
5. If you sell your units solely for cash, you will recognize gain or
loss for Federal income tax purposes in an amount equal to the difference
between (i) your amount realized on the sale and (ii) your adjusted tax
basis in the units you sold.
6. If you retain all or a portion of your units and your partnership
terminates for Federal income tax purposes, you will not recognize any gain
or loss as a result of such termination and your capital account in your
partnership will not be affected.
7. Because of the factual nature of the inquiry, no opinion is
expressed by Special Tax Counsel as to whether your exercise of a
redemption right with respect to an OP Unit would cause your contribution
of units to the AIMCO Operating Partnership to be a taxable transaction
under the disguised sale rules of the Code.
8. The discussion under the caption "United States Federal Income Tax
Consequences" is a fair and accurate summary of the material Federal income
tax consequences of the offer and of the acquisition, ownership and
disposition of the OP Units and the AIMCO Stock by a holder who acquires
the OP Units or AIMCO Stock in connection with the offer, subject to the
qualifications set forth therein.
It must be emphasized that these opinions are based and conditioned upon
representations and covenants made by AIMCO and the AIMCO Operating Partnership
as to factual matters (including representations and covenants concerning
AIMCO's properties and the past, present and future conduct of its business
operations). These opinions are expressed as of the date of the opinion letter
and Special Tax Counsel has no obligation to advise AIMCO or the AIMCO Operating
Partnership of any subsequent change in the matters stated, represented, or
assumed or any subsequent change in the law. An opinion of counsel is not
binding on the IRS, and no assurance can be given that the IRS will not
challenge the above opinions of Special Tax Counsel.
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS
Except as described below, you will not recognize gain or loss for Federal
income tax purposes when you exchange your units solely for OP Units. You may
recognize gain upon such exchange if, immediately
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prior to such exchange, the amount of liabilities of your partnership allocable
to the units you transferred exceeds the amount of the AIMCO Operating
Partnership liabilities allocable to you immediately after such exchange. If
this was true in your case, the excess would be treated as a deemed distribution
of cash to you from the AIMCO Operating Partnership. This deemed cash
distribution would be treated as a nontaxable return of capital to the extent of
your adjusted tax basis in your OP Units and thereafter as a taxable gain.
The AIMCO Operating Partnership anticipates that, under most circumstances,
you will be allocated an amount of the AIMCO Operating Partnership liabilities,
as determined immediately after you exchange your units pursuant to the offer,
at least equal to the amount of liabilities of your partnership that were
allocable to your units prior to such exchange. Accordingly, the AIMCO Operating
Partnership anticipates that most persons who participate in the tender offer
would not recognize gain or loss as a result of an exchange of units solely for
OP Units pursuant to the offer.
DISGUISED SALES
Under the Code, a transfer of property by a partner to a partnership
followed by a related transfer by the partnership of money or other property to
the partner is treated as a "disguised" sale if (1) the second transfer would
not have occurred but for the first transfer and (2) the second transfer "is not
dependent on the entrepreneurial risks of the partnership operations." In a
disguised sale, the partner is treated as if he or she sold the contributed
property to the partnership as of the date the property was contributed to the
partnership. In addition, unless a few technical exceptions apply, transfers of
money or other property between a partnership and a partner that are made within
two years of each other, including redemptions of OP Units made within two years
of a contribution of your units, must be reported to the IRS and are presumed to
be a "disguised" sale unless the facts and circumstances clearly establish that
the transfers do not constitute a sale.
While there is no authority applying the disguised sale rules to the
exercise of a redemption right by a partner with respect to a partnership
interest received in exchange for property, the exercise of a redemption right
with respect to OP Units within two years of the date of the contribution of
your units to the AIMCO Operating Partnership may be treated as a disguised
sale. If this treatment were to apply, you would be treated for Federal income
tax purposes as if, on the date of the contribution of your units, the AIMCO
Operating Partnership transferred to you an obligation to give you the
redemption proceeds. In that case, you would be required to recognize gain on
the disguised sale in such earlier year. Because of the factual nature of such
an inquiry, Special Tax Counsel is unable to opine whether your exercise of a
redemption right with respect to an OP Unit would cause your contribution of
units to the AIMCO Operating Partnership to be a taxable transaction under the
disguised sale rules of the Code.
If you are considering exchanging units for OP Units pursuant to the offer,
please read the description under the heading "United States Federal Income Tax
Consequences -- Taxation of the AIMCO Operating Partnership and OP
Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO
Operating Partnership."
TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS
If you exchange your units for cash and OP Units, you will be treated as
selling some of your units for cash in a taxable sale and contributing some of
your units for OP Units in a tax-free exchange. Your adjusted tax basis in your
transferred units will be allocated between the units you will be deemed to have
sold and the units you will be deemed to have contributed to the AIMCO Operating
Partnership.
With respect to the units that you will be treated as selling, you will
recognize gain or loss in an amount equal to the difference between (i) your
"amount realized" on the sale and (ii) your adjusted tax basis in units you
sold. Your "amount realized" on such sale will be equal to the sum of the amount
of cash you received pursuant to the offer (that is, the offer consideration)
plus the amount of your partnership's liabilities attributed to the units you
sold. For purposes of these partial sale rules, the amount of your partnership's
liabilities attributed to the units you sold will be equal to the lesser of (i)
the excess
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of the amount of your partnership's liabilities allocable to you in respect of
the transferred units immediately prior to the exchange over the amount of such
liabilities allocable to you as determined immediately after the exchange or
(ii) the product of (A) the amount of your partnership's liabilities allocable
to you in respect of the units you are deemed to have sold immediately prior to
the exchange and (B) your "net equity percentage" with respect to those units.
Your "net equity percentage" will be equal to the percentage determined by
dividing (x) the cash you received in the exchange by (y) the excess of the
gross fair market value of the units in the exchange over the amount of your
partnership's liabilities allocable to you in respect of those units immediately
prior to the exchange. Thus, your tax liability could exceed the amount of cash
you receive in the sale.
With respect to the units that you will be treated as exchanging, rather
than selling, you will be taxed as described above under the heading "Tax
Consequences of Exchanging Units Solely for OP Units."
TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH
If you sell your units solely for cash, you will recognize gain or loss on
a sale of your units equal to the difference between (i) your "amount realized"
on the sale and (ii) your adjusted tax basis in the units you sold. The "amount
realized" with respect to a unit will be equal to the sum of the amount of cash
you received for your units (that is, the offer consideration) plus the amount
of the liabilities of your partnership allocable to such units (as determined
under Section 752 of the Code). Thus, your tax liability could exceed the amount
of cash you receive in the sale.
ADJUSTED TAX BASIS
If you acquired your units for cash:
- your initial tax basis in your units will be equal to such cash
investment in your partnership increased by your share of your
partnership's liabilities at the time such units were acquired;
- your initial tax basis generally has been increased by:
- your share of your partnership's income and gains and
- any increases in your share of your partnership's liabilities; and
- your initial tax basis generally has been decreased (but not below zero)
by:
- your share of cash distributions from your partnership,
- any decreases in your share of your partnership's liabilities,
- your share of your partnership's losses, and
- your share of nondeductible expenditures of your partnership that are not
chargeable to capital.
For purposes of determining your adjusted tax basis in your units
immediately prior to a disposition of such units, your adjusted tax basis will
include your share of your partnership's income, gain or loss for the taxable
year of disposition. If your adjusted tax basis is less than your share of your
partnership's liabilities (e.g., as a result of the effect of net loss
allocations and/or distributions exceeding the cost of your unit), the gain you
would recognize pursuant to the offer will exceed the cash proceeds you would
realize upon the sale of your units. The adjusted tax basis of the OP Units you
receive in exchange for your units pursuant to the offer will be equal to (i)
the sum of your adjusted tax basis in the units you transferred plus any gain
recognized in the exchange and will be reduced by (ii) any cash you received or
you were deemed to receive in the exchange.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER
Except as described below, the gain or loss that you recognize on a sale or
exchange of a unit pursuant to the offer will be treated as a capital gain or
loss and will be treated as long-term capital gain or loss if your holding
period for the unit exceeds one year. Long-term capital gains recognized by
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individuals and certain other noncorporate taxpayers generally will be subject
to a maximum Federal income tax rate of 20%. If the amount realized with respect
to a unit that is attributable to your share of "unrealized receivables" of your
partnership exceeds the tax basis attributable to those assets, such excess will
be treated as ordinary income. Among other things, "unrealized receivables"
include depreciation recapture for certain types of property. In addition, the
maximum Federal income tax rate applicable to persons who are noncorporate
taxpayers for net capital gains attributable to the sale of depreciable real
property (which may be determined to include an interest in a partnership such
as your partnership) held for more than one year is currently 25% (rather than
20%) to the extent of previously claimed depreciation deductions that would not
be treated as "unrealized receivables."
If you tender units in the offer, you will be allocated a share of your
partnership's taxable income or loss for the year of tender with respect to any
units sold or exchanged. You will not receive any future distributions on units
that you tender on or after the date on which such units are accepted for
purchase, and accordingly, you may not receive any distributions with respect to
the income or loss. Such allocation and any cash distributed by your partnership
to you for that year will affect your adjusted tax basis in your unit and,
therefore, the amount of your taxable gain or loss upon a sale of a unit
pursuant to the offer.
PASSIVE ACTIVITY LOSSES
The passive activity loss rules of the Code limit the use of losses derived
from passive activities, which generally include investments in limited
partnership interests such as the units. An individual, as well as certain other
types of investors, generally cannot use losses from passive activities to
offset nonpassive activity income received during the taxable year. Passive
activity losses that are disallowed for a particular tax year are "suspended"
and may be carried forward to offset passive activity income earned by the
investor in future taxable years. In addition, such suspended losses may be
claimed as a deduction, subject to other applicable limitations, upon a taxable
disposition of the investor's interest in the passive activity.
Accordingly, if your investment in your partnership is treated as a passive
activity, you may be able to shelter gain from the sale of your units pursuant
to the offer with passive losses in the manner described below. If you receive
cash for all or a portion of your units pursuant to the offer and recognize a
gain on such sale, you will be entitled to use your current and "suspended"
passive activity losses (if any) from your partnership and other passive sources
to offset that gain. If you receive cash for all or a portion of your units
pursuant to the offer and recognize a loss on such sale, you will be entitled to
deduct that loss currently (subject to other applicable limitations) against the
sum of your passive activity income from your partnership for that year (if any)
plus any passive activity income from other sources for that year. If you
receive cash for all of your units pursuant to the offer, the balance of any
"suspended" losses from your partnership that were not otherwise utilized
against passive activity income as described in the two preceding sentences will
no longer be suspended and will therefore be deductible (subject to any other
applicable limitations) by you against any other income for that year,
regardless of the character of that income. Accordingly, you should consult your
tax advisor concerning whether, and the extent to which, you have available
suspended passive activity losses from your partnership or other investments
that may be used to offset gain from the sale of your units pursuant to the
offer.
TAX REPORTING
If you tender any units, you must report the transaction by filing a
statement with your Federal income tax return for the year of the tender which
provides certain required information to the IRS. To prevent the possible
application of back-up Federal income tax withholding of 30% with respect to
payment of the offer consideration, you may have to provide the AIMCO Operating
Partnership with your correct taxpayer identification number. See the
instructions to the Letter of Transmittal.
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FOREIGN OFFEREES
Gain recognized by a foreign person on a transfer of a unit for cash, OP
Units, or a combination thereof, pursuant to the offer will be subject to
Federal income tax under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). If you are a foreign person, the AIMCO Operating Partnership will be
required, under the FIRPTA provisions of the Code, to deduct and withhold 10% of
the amount realized by you on the disposition. The amount withheld would be
creditable against your Federal income tax liability and, if the amount withheld
exceeds your actual tax liability you could obtain a refund from the IRS by
filing a U.S. income tax return. See the Instructions to the Letter of
Transmittal.
TAX CONSEQUENCES OF A TERMINATION OF YOUR PARTNERSHIP
Section 708 of the Code provides that if there is a sale or exchange of 50%
or more of the total interest in capital and profits of a partnership within any
12-month period, such partnership terminates for Federal income tax purposes (a
"Termination"). The AIMCO Operating Partnership's acquisition of units pursuant
to the offer may result in a Termination of your partnership. If an acquisition
of units results in a Termination, the following Federal income tax events will
be deemed to occur: the terminated Partnership (the "Old Partnership") will be
deemed to have contributed all of its assets (subject to its liabilities) (the
"Hypothetical Contribution") to a new partnership (the "New Partnership") in
exchange for interests in the New Partnership and, immediately thereafter, the
Old Partnership will be deemed to have distributed interests in the New
Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership
and to the offerees who do not tender all of their units (a "Remaining Offeree")
in proportion to their respective interests in the Old Partnership in
liquidation of the Old Partnership.
A Remaining Offeree will not recognize any gain or loss upon the
Hypothetical Distribution or upon the Hypothetical Contribution and the capital
accounts of the Remaining Offerees in the Old Partnership will carry over intact
to the New Partnership. A Termination will change (and possibly shorten) a
Remaining Offeree's holding period with respect to its units in your partnership
for Federal income tax purposes. Gains recognized by a Remaining Offeree on the
disposition of New Partnership interests with a holding period of 12 months or
less may be classified as short-term capital gains and subject to taxation at
ordinary income tax rates.
The New Partnership's adjusted tax basis in its assets will be the same as
the Old Partnership's basis in such assets immediately before the Termination. A
Termination will also cause the New Partnership to recalculate the depreciable
lives of its assets. This will cause the assets to be depreciated over a longer
period of time than if there had been no Termination. This would generally
decrease the annual average depreciation deductions allocable to the Remaining
Offerees for a number of years following consummation of the offer (thereby
increasing the taxable income allocable to their retained units in each such
year), but would have no effect on the total depreciation deductions available
over the useful lives of the assets of your partnership.
Elections as to tax matters previously made by the Old Partnership prior to
Termination will not be applicable to the New Partnership unless the New
Partnership chooses to make the same elections.
Additionally, upon a Termination, the Old Partnership's taxable year will
close for all offerees.
You should consult your tax advisor as to the particular tax consequences
applicable to you as a result of a sale or exchange of units pursuant to the
offer.
TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS
PARTNERSHIP STATUS
AIMCO believes that the AIMCO Operating Partnership is classified as a
partnership for Federal income tax purposes, and not as an association taxable
as a corporation. No assurance can be given, however, that the IRS will not
challenge the status of the AIMCO Operating Partnership as a partnership.
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Some partnerships are, for Federal income tax purposes, characterized not
as partnerships but as associations taxable as corporations or as "publicly
traded partnerships" taxable as corporations. A partnership will be classified
as a publicly traded partnership if interests therein are traded on an
"established securities market" or are "readily tradable" on a "secondary market
(or the substantial equivalent thereof)."
The AIMCO Operating Partnership believes and intends to take the position
that the AIMCO Operating Partnership should not be classified as a publicly
traded partnership because (i) the OP Units are not traded on an established
securities market and (ii) the AIMCO Operating Partnership currently believes
the OP Units should not be considered readily tradable on a secondary market or
the substantial equivalent thereof. The determination of whether interests in a
partnership are readily tradable on a secondary market or the substantial
equivalent thereof, however, depends on various facts and circumstances
(including facts that are not within the control of the AIMCO Operating
Partnership). Treasury Regulations generally effective for taxable years
beginning after December 31, 1995 (the "PTP Regulations") provide limited safe
harbors, which, if satisfied, will prevent a partnership's interests from being
treated as readily tradable on a secondary market or the substantial equivalent
thereof. Under a grandfather rule, certain existing partnerships may rely on
safe harbors contained in IRS Notice 88-75 rather than on the safe harbors
contained in the PTP Regulations for all taxable years of the partnership
beginning before January l, 2006. The AIMCO Operating Partnership believes that
it is subject to such grandfather rule. The AIMCO Operating Partnership may not
have satisfied any of the safe harbors in Notice 88-75 in its previous tax
years. In addition, because the AIMCO Operating Partnership's ability to satisfy
a safe harbor in Notice 88-75 (or to the extent applicable, a safe harbor in the
PTP Regulations) may involve facts that are not within its control, it is not
possible to predict whether the AIMCO Operating Partnership will satisfy a safe
harbor in future tax years. The safe harbors are not intended to be substantive
rules for the determination of whether partnership interests are readily
tradable on a secondary market or the substantial equivalent thereof, and
consequently, the failure to meet these safe harbors will not necessarily cause
the AIMCO Operating Partnership to be treated as a publicly traded partnership.
No assurance can be given, however, that the IRS will not assert that
partnerships such as the AIMCO Operating Partnership constitute publicly traded
partnerships, or that facts and circumstances will not develop which could
result in the AIMCO Operating Partnership being treated as a publicly traded
partnership.
If the AIMCO Operating Partnership were classified as a publicly traded
partnership, it would nevertheless not be taxable as a corporation as long as
90% or more of its gross income consists of "qualifying income." In general,
qualifying income includes interest, dividends, "real property rents" (as
defined by section 856 of the Code) and gain from the sale or disposition of
real property. The AIMCO Operating Partnership believes that more than 90% of
its gross income consists of qualifying income and expects that more than 90% of
its gross income in future tax years will consist of qualifying income. In such
event, even if the AIMCO Operating Partnership were characterized as a publicly
traded partnership, it would not be taxable as a corporation. If the AIMCO
Operating Partnership were characterized as a publicly traded partnership,
however, each OP Unitholder would be subject to special rules under section 469
of the Code. See "-- Taxation of the AIMCO Operating Partnership and OP
Unitholders -- Limitations on Deductibility of Losses -- Passive Activity Loss
Limitation." No assurance can be given that the actual results of the AIMCO
Operating Partnership operations for any one taxable year will enable it to
satisfy the qualifying income exception.
If the AIMCO Operating Partnership were classified as an association or
publicly traded partnership taxable as a corporation (because it did not meet
the qualifying income exception discussed above), it would be subject to tax at
the entity level as a regular corporation and OP Unitholders would be subject to
tax in the same manner as stockholders of a corporation. The classification of
the AIMCO Operating Partnership as an association or publicly traded partnership
taxable as a corporation could also result in a substantial liability to OP
Unitholders. Thus, the AIMCO Operating Partnership would be subject to Federal
tax (and possibly increased state and local taxes) on its net income, determined
without reduction for any distributions made to the OP Unitholders, at regular
Federal corporate income tax rates, thereby
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reducing the amount of any cash available for distribution to the OP
Unitholders, which reduction could also materially and adversely impact the
liquidity and value of the OP Units. In addition, the AIMCO Operating
Partnership's items of income, gain, loss, deduction and expense would not be
passed through to the OP Unitholders and the OP Unitholders would not be subject
to tax on the income earned by the AIMCO Operating Partnership. Distributions
received by an OP Unitholder from the AIMCO Operating Partnership, however,
would be treated as dividend income for Federal income tax purposes, subject to
tax as ordinary income to the extent of current and accumulated earnings and
profits of the AIMCO Operating Partnership, and the excess, if any, as a
nontaxable return of capital to the extent of the OP Unitholder's adjusted tax
basis in his AIMCO Operating Partnership interest (without taking into account
Partnership liabilities), and thereafter as gain from the sale of a capital
asset. Characterization of the AIMCO Operating Partnership as an association or
publicly traded partnership taxable as a corporation would also result in the
termination of AIMCO's status as a REIT for Federal income tax purposes, which
would have a material adverse impact on AIMCO. See "United States Federal Income
Tax Consequences -- Taxation of AIMCO and AIMCO Stockholders -- Tax Aspects of
AIMCO's Investments in Partnerships."
No assurances can be given that the IRS would not challenge the status of
the AIMCO Operating Partnership as a "partnership" which is not "publicly
traded" for United States Federal income tax purposes or that a court would not
reach a result contrary to such positions. Accordingly, each prospective
investor is urged to consult his tax advisor regarding the classification and
treatment of the AIMCO Operating Partnership as a "partnership" for United
States Federal income tax purposes.
The following discussion assumes that the AIMCO Operating Partnership is,
and will continue to be, classified and taxed as a partnership for Federal
income tax purposes.
TAXATION OF OP UNITHOLDER
In general, a partnership is treated as a "pass-through" entity for Federal
income tax purposes and is not itself subject to Federal income taxation. Each
partner of a partnership, however, is subject to tax on his allocable share of
partnership tax items, including partnership income, gains, losses, deductions,
and expenses ("Partnership Tax Items") for each taxable year of the partnership
ending within or with such taxable year of the partner, regardless of whether he
receives any actual distributions from the partnership during the taxable year.
Generally, the characterization of any particular Partnership Tax Item is
determined at the partnership, rather than at the partner level, and the amount
of a partner's allocable share of such item is governed by the terms of the
partnership agreement.
No Federal income tax will be payable by the AIMCO Operating Partnership.
Instead, each OP Unitholder will be (i) required to include in income his
allocable share of any AIMCO Operating Partnership income or gains and (ii)
entitled to deduct his allocable share of any AIMCO Operating Partnership
deductions or losses, but only to the extent of the OP Unitholder's adjusted tax
basis in his AIMCO Operating Partnership interest and subject to the "at risk"
and "passive activity loss" rules discussed below under the heading "Limitations
on Deductibility of Losses." An OP Unitholder's allocable share of the AIMCO
Operating Partnership's taxable income may exceed the cash distributions to the
OP Unitholder for any year if the AIMCO Operating Partnership retains its
profits rather than distributing them.
ALLOCATIONS OF THE AIMCO OPERATING PARTNERSHIP PROFITS AND LOSSES
For Federal income tax purposes, an OP Unitholder's allocable share of the
AIMCO Operating Partnership's Partnership Tax Items will be determined by the
AIMCO Operating Partnership agreement if such allocations either have
"substantial economic effect" or are determined to be in accordance with the OP
Unitholder's interests in the AIMCO Operating Partnership. The manner in which
Partnership Tax Items of the AIMCO Operating Partnership are allocated is
described above under the heading "Description of OP Units; Summary of
Partnership Agreement -- Allocations of Net Income and Net Loss." If the
allocations provided by the AIMCO Operating Partnership agreement were
successfully
83
challenged by the IRS, the redetermination of the allocations to a particular OP
Unitholder for Federal income tax purposes may be less favorable than the
allocation set forth in the AIMCO Operating Partnership agreement.
TAX BASIS OF A PARTNERSHIP INTEREST
A partner's adjusted tax basis in his partnership interest is relevant,
among other things, for determining (i) gain or loss upon a taxable disposition
of his partnership interest, (ii) gain upon the receipt of partnership
distributions, and (iii) the limitations imposed on the use of partnership
deductions and losses allocable to such partner. Generally, the adjusted tax
basis of an OP Unitholder's interest in the AIMCO Operating Partnership is equal
to (A) the sum of the adjusted tax basis of the property contributed by the OP
Unitholder to the AIMCO Operating Partnership in exchange for an interest in the
AIMCO Operating Partnership and the amount of cash, if any, contributed by the
OP Unitholder to the AIMCO Operating Partnership, (B) reduced, but not below
zero, by the OP Unitholder's allocable share of AIMCO Operating Partnership
distributions, deductions, and losses, (C) increased by the OP Unitholder's
allocable share of AIMCO Operating Partnership income and gains, and (D)
increased by the OP Unitholder's allocable share of AIMCO Operating Partnership
liabilities and decreased by the OP Unitholder's liabilities assumed by the
AIMCO Operating Partnership.
CASH DISTRIBUTIONS
Cash distributions received from a partnership do not necessarily correlate
with income earned by the partnership as determined for Federal income tax
purposes. Thus, an OP Unitholder's Federal income tax liability in respect of
his allocable share of the AIMCO Operating Partnership taxable income for a
particular taxable year may exceed the amount of cash, if any, received by the
OP Unitholder from the AIMCO Operating Partnership during such year.
If cash distributions, including a "deemed" cash distribution as discussed
below, received by an OP Unitholder in any taxable year exceed his allocable
share of the AIMCO Operating Partnership taxable income for the year, the excess
will constitute, for Federal income tax purposes, a return of capital to the
extent of such OP Unitholder's adjusted tax basis in his AIMCO Operating
Partnership interest. Such return of capital will not be includible in the
taxable income of the OP Unitholder, for Federal income tax purposes, but it
will reduce, but not below zero, the adjusted tax basis of the AIMCO Operating
Partnership interest held by the OP Unitholder. If an OP Unitholder's tax basis
in his AIMCO Operating Partnership interest is reduced to zero, a subsequent
cash distribution received by the OP Unitholder will be subject to tax as
capital gain and/or ordinary income, but only if, and to the extent that, such
distribution exceeds the subsequent positive adjustments, if any, to the tax
basis of the OP Unitholder's AIMCO Operating Partnership interest as determined
at the end of the taxable year during which such distribution is received. A
decrease in an OP Unitholder's share of the AIMCO Operating Partnership
liabilities resulting from the payment or other settlement, or reallocation of
such liabilities is generally treated, for Federal income tax purposes, as a
deemed cash distribution. A decrease in an OP Unitholder's percentage interest
in the AIMCO Operating Partnership because of the issuance by the AIMCO
Operating Partnership of additional OP Units or otherwise, may decrease an OP
Unitholder's share of nonrecourse liabilities of the AIMCO Operating Partnership
and thus, may result in a corresponding deemed distribution of cash.
A non-pro rata distribution (or deemed distribution) of money or property
may result in ordinary income to an OP Unitholder, regardless of such OP
Unitholder's tax basis in his OP Units, if the distribution reduces such OP
Unitholder's share of the AIMCO Operating Partnership's "Section 751 Assets."
"Section 751 Assets" are defined by the Code to include "unrealized receivables"
or "inventory items." Among other things, "unrealized receivables" include
amounts attributable to previously claimed depreciation deductions on certain
types of property. To the extent that such a reduction in an OP Unitholder's
share of Section 751 Assets occurs, the AIMCO Operating Partnership will be
deemed to have distributed a proportionate share of the Section 751 Assets to
the OP Unitholder followed by a deemed exchange of such assets with the AIMCO
Operating Partnership in return for the non-pro rata
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portion of the actual distribution made to such OP Unitholder. This deemed
exchange will generally result in the realization of ordinary income under
Section 751(b) by the OP Unitholder. Such income will equal the excess of (1)
the non-pro rata portion of such distribution over (2) the OP Unitholder's tax
basis in such OP Unitholder's share of such Section 751 Assets deemed
relinquished in the exchange.
TAX CONSEQUENCES RELATING TO CONTRIBUTED ASSETS
Generally, section 721 of the Code provides that neither the Contributing
Partner nor the AIMCO Operating Partnership will recognize a gain or loss, for
Federal income tax purposes, upon a contribution of property to the AIMCO
Operating Partnership in exchange for OP Units. Notwithstanding this general
rule of nonrecognition, the Contributing Partner may recognize gain where the
property transferred is subject to liabilities, or the AIMCO Operating
Partnership assumes liabilities in connection with a transfer of property, and
the amount of such liabilities exceeds the amount of the AIMCO Operating
Partnership liabilities allocated to the Contributing Partner as determined
immediately after the transfer. Such excess is treated by the Contributing
Partner, for Federal income tax purposes, as the receipt of a deemed
distribution of cash to the Contributing Partner from the AIMCO Operating
Partnership. Where the property transferred to the AIMCO Operating Partnership
consists of an interest in another partnership (the "Underlying Partnership") in
exchange for an OP Unit, the person will be treated, for Federal income tax
purposes, as having transferred to the AIMCO Operating Partnership his allocable
share of the liabilities of the Underlying Partnership, which could result in,
or increase the amount of, a deemed cash distribution. As discussed above in
"-- Cash Distributions", such deemed cash distributions are generally treated as
a nontaxable return of capital to the extent of the Contributing Partner's
adjusted tax basis in his OP Units and thereafter as gain from the sale of such
partnership interest.
If a Contributing Partner transfers property to the AIMCO Operating
Partnership in exchange for an OP Unit and the adjusted tax basis of such
property differs from its fair market value, the AIMCO Operating Partnership Tax
Items must be allocated in a manner such that the Contributing Partner is
charged with, or benefits from, the unrealized gain or unrealized loss
associated with such property at the time of the contribution. Where a partner
contributes cash to a partnership that holds appreciated property, Treasury
Regulations provide for a similar allocation of such items to the other
partners. These rules may apply to a contribution by AIMCO to the AIMCO
Operating Partnership of cash proceeds received by AIMCO from the offering of
its stock. Such allocations are solely for Federal income tax purposes and do
not affect the book capital accounts or other economic or legal arrangements
among the OP Unitholders. The general purpose underlying this provision is to
specially allocate certain Partnership Tax Items in order to place both the
noncontributing and Contributing Partners in the same tax position that they
would have been in had the Contributing Partner contributed property with an
adjusted tax basis equal to its fair market value. Treasury Regulations provide
the AIMCO Operating Partnership with several alternative methods and allow the
AIMCO Operating Partnership to adopt any other reasonable method to make
allocations to reduce or eliminate Book-Tax Differences (as defined below). The
General Partner, in its sole and absolute discretion and in a manner consistent
with Treasury Regulations, will select and adopt a method of allocating AIMCO
Operating Partnership Tax Items for purposes of eliminating such disparities.
In general, certain OP Unitholders will be allocated lower amounts of
depreciation deductions for tax purposes and increased amounts of taxable income
and gain on the sale by the AIMCO Operating Partnership or other Subsidiary
Partnerships of the contributed properties. Accordingly, in the event the AIMCO
Operating Partnership disposes of contributed property, income attributable to
the Book-Tax Difference of such contributed property generally will be allocated
to the Contributing Partner, and all OP Unitholders generally will be allocated
only their share of gains attributable to appreciation, if any, occurring after
the contribution of the contributed property. These incremental allocations of
income will not result in additional cash distributions to the Contributing
Partner, with the result that the Contributing Partner may not receive cash
sufficient to pay the taxes attributable to such income. These allocations will
tend to eliminate the Book-Tax Differences with respect to the contributed
property over the life of the AIMCO Operating Partnership. However, the special
allocation rules of section 704(c) do not always
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entirely rectify the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. Thus, the carryover basis of the
contributed property in the hands of the AIMCO Operating Partnership may cause a
noncontributing OP Unitholder to be allocated lower amounts of depreciation and
other deductions for tax purposes than would be allocated to such OP Unitholder
if the contributed property had a tax basis equal to its fair market value at
the time of contribution, and be allocated taxable gain in the event of a sale
of the contributed property in excess of the economic or book income allocated
to it as a result of such sale. This may cause noncontributing OP Unitholders to
recognize taxable income in excess of cash proceeds.
LIMITATIONS ON DEDUCTIBILITY OF LOSSES
Basis Limitation. To the extent that an OP Unitholder's allocable share of
AIMCO Operating Partnership deductions and losses exceeds his adjusted tax basis
in his AIMCO Operating Partnership interest at the end of the taxable year in
which the losses and deductions flow through, the excess losses and deductions
cannot be utilized, for Federal income tax purposes, by the OP Unitholder in
such year. The excess losses and deductions may, however, be utilized in the
first succeeding taxable year in which, and to the extent that, there is an
increase in the tax basis of the AIMCO Operating Partnership interest held by
such OP Unitholder, but only to the extent permitted under the "at risk" and
"passive activity loss" rules discussed below.
"At Risk" Limitation. Under the "at risk" rules of section 465 of the
Code, a noncorporate taxpayer and a closely held corporate taxpayer are
generally not permitted to claim a deduction, for Federal income tax purposes,
in respect of a loss from an activity, whether conducted directly by the
taxpayer or through an investment in a partnership, to the extent that the loss
exceeds the aggregate dollar amount which the taxpayer has "at risk" in such
activity at the close of the taxable year. To the extent that losses are not
permitted to be used in any taxable year, such losses may be carried over to
subsequent taxable years and may be claimed as a deduction by the taxpayer if,
and to the extent that, the amount which the taxpayer has "at risk" is
increased. Provided certain requirements are met, the "at risk" rules generally
do not apply to losses arising from any activity that constitutes "the holding
of real property," which the holders of a OP Unit generally should constitute.
"Passive Activity Loss" Limitation. The passive activity loss rules of
section 469 of the Code limit the use of losses derived from passive activities,
which generally includes an investment in limited partnership interests such as
the OP Units. If an investment in an OP Unit is treated as a passive activity,
an OP Unitholder who is an individual investor, as well as certain other types
of investors, would not be able to use losses from the AIMCO Operating
Partnership to offset nonpassive activity income, including salary, business
income, and portfolio income (e.g., dividends, interest, royalties, and gain on
the disposition of portfolio investments) received during the taxable year.
Passive activity losses that are disallowed for a particular taxable year may,
however, be carried forward to offset passive activity income earned by the OP
Unitholder in future taxable years. In addition, such disallowed losses may be
claimed as a deduction, subject to the basis and at risk limitations discussed
above, upon a taxable disposition of an OP Unitholder's entire interest in the
AIMCO Operating Partnership, regardless of whether such OP Unitholder has
received any passive activity income during the year of disposition.
If the AIMCO Operating Partnership were characterized as a publicly traded
partnership, each OP Unitholder would be required to treat any loss derived from
the AIMCO Operating Partnership separately from any income or loss derived from
any other publicly traded partnership, as well as from income or loss derived
from other passive activities. In such case, any net losses or credits
attributable to the AIMCO Operating Partnership which are carried forward may
only be offset against future income of the AIMCO Operating Partnership.
Moreover, unlike other passive activity losses, suspended losses attributable to
the AIMCO Operating Partnership would only be allowed upon the complete
disposition of the OP Unitholder's "entire interest" in the AIMCO Operating
Partnership.
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SECTION 754 ELECTION
The AIMCO Operating Partnership has made the election permitted by section
754 of the Code. Such election is irrevocable without the consent of the IRS.
The election will generally permit a purchaser of OP Units, such as AIMCO when
it acquires AIMCO OP Units from OP Unitholders, to adjust its share of the basis
in the AIMCO Operating Partnership's properties pursuant to section 743(b) of
the Code to fair market value (as reflected by the value of consideration paid
for the OP Units), as if such purchaser had acquired a direct interest in the
AIMCO Operating Partnership assets. The section 743(b) adjustment is attributed
solely to a purchaser of OP Units and is not added to the bases of the AIMCO
Operating Partnership's assets associated with all of the OP Unitholders in the
AIMCO Operating Partnership.
DEPRECIATION
Section 168(i)(7) of the Code provides that in the case of property
transferred to a partnership in a section 721 transaction, the transferee shall
be treated as the transferor for purposes of computing the depreciation
deduction with respect to so much of the basis in the hands of the transferee as
does not exceed the adjusted basis in the hands of the transferor. The effect of
this rule would be to continue the historic basis, placed in service dates and
methods with respect to the depreciation of the properties being contributed by
a Contributing Partner to the AIMCO Operating Partnership in exchange for OP
Units. However, an acquirer of OP Units that obtains a section 743(b) adjustment
by reason of such acquisition (see "Section 754 Election," above) generally will
be allowed depreciation with respect to such adjustment beginning as of the date
of the exchange as if it were new property placed in service as of that date.
SALE, REDEMPTION OR EXCHANGE OF OP UNITS
An OP Unitholder will recognize a gain or loss upon a sale of an OP Unit, a
redemption of an OP Unit for cash, an exchange of an OP Unit for shares of Class
A Common Stock or other taxable disposition of an OP Unit. Gain or loss
recognized upon a sale or exchange of an OP Unit will be equal to the difference
between (i) the amount realized in the transaction (i.e., the sum of the cash
and the fair market value of any property received for the OP Unit plus the
amount of the AIMCO Operating Partnership liabilities allocable to the OP Unit
at such time) and (ii) the OP Unitholder's tax basis in the OP Unit disposed of,
which tax basis will be adjusted for the OP Unitholder's allocable share of the
AIMCO Operating Partnership's income or loss for the taxable year of the
disposition. The tax liability resulting from the gain recognized on a
disposition of an OP Unit could exceed the amount of cash and the fair market
value of property received.
If the AIMCO Operating Partnership redeems an OP Unitholder's OP Units for
cash (which is not contributed by AIMCO to effect the redemption), the tax
consequences generally would be the same as described in the preceding
paragraphs, except that if the AIMCO Operating Partnership redeems less than all
of an OP Unitholder's OP Units, the OP Unitholder would recognize no taxable
loss and would recognize taxable gain only to the extent that the cash, plus the
amount of the AIMCO Operating Partnership liabilities allocable to the redeemed
OP Units, exceeded the OP Unitholder's adjusted tax basis in all of such OP
Unitholder's OP Units immediately before the redemption.
Capital gains recognized by individuals and certain other noncorporate
taxpayers upon the sale or disposition of an OP Unit held for more than one year
at the time of disposition will be long-term capital gains and will be
short-term capital gains if the OP Unit is held for one year or less. Generally,
gain or loss recognized by an OP Unitholder on the sale or other taxable
disposition of an OP Unit will be taxable as capital gain or loss. However, to
the extent that the amount realized upon the sale or other taxable disposition
of an OP Unit attributable to an OP Unitholder's share of "unrealized
receivables" of the AIMCO Operating Partnership exceeds the basis attributable
to those assets, such excess will be treated as ordinary income. Among other
things, "unrealized receivables" include amounts attributable to previously
claimed depreciation deductions on certain types of property. In addition, the
maximum Federal income tax rate for net capital gains attributable to the sale
of depreciable real property (which may be
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determined to include an interest in a partnership such as the AIMCO Operating
Partnership) held for more than 12 months is currently 25% (rather than the
current maximum rate of 20%) to the extent of previously claimed depreciation
deductions that would not be treated as "unrealized receivables."
DISGUISED SALES
A contribution by an OP Unitholder to the AIMCO Operating Partnership
generally will be tax free to such OP Unitholder except to the extent it is
treated as a "disguised sale" under the Code. A transfer of property by a
partner to a partnership followed by a related transfer by the partnership of
money or other property (including in certain cases the assumption of or taking
subject to a liability) to the partner is treated as a "disguised sale" if (i)
the second transfer would not have occurred but for the first transfer and (ii)
the second transfer "is not dependent on the entrepreneurial risks of the
partnership's operations." In a disguised sale, the partner is treated as if he
or she sold the contributed property to the partnership on the date the property
was contributed to the partnership. Transfers of money or other property by a
partnership to a partner that are made within two years of such partner's
contribution of property to the partnership (including redemptions of OP Units
made within two years of a contribution by such Unitholder) must be reported to
the IRS and are presumed to be a disguised sale unless the facts and
circumstances clearly establish that the transfers do not constitute a sale.
Generally, if a liability is incurred in anticipation of the transfer of
such property to the AIMCO Operating Partnership, or during the two year period
prior to the transfer of property to the AIMCO Operating Partnership and excess
debt proceeds are obtained by the Contributing Partner, all or a portion of the
liability may be presumed to be incurred in anticipation of the transfer
("nonqualified liability"), and thus must be treated as consideration for
purposes of the disguised sale rules, unless the facts and circumstances clearly
establish otherwise. Although the Contributing Partner may rebut such
presumption by showing that the liability incurrence was not made in
anticipation of the transfer of property to the AIMCO Operating Partnership, the
Contributing Partner must disclose its tax treatment of such liability to the
IRS in a statement attached to the Contributing Partner's tax return. The
assumption of any nonqualified liability by the AIMCO Operating Partnership will
be treated as additional consideration received by the Contributing Partner for
purposes of the disguised sale rules to the extent that the amount of such
liability exceeds the Contributing Partner's share of such liability immediately
after the AIMCO Operating Partnership assumes the liability. In such event, a
portion of the liability which did not generate excess debt proceeds could also
be treated as additional disguised sale consideration received by the
Contributing Partner. This portion generally would be the lesser of (1) the
amount of consideration that would result if the entire liability were
nonqualified, or (2) the amount of the "qualified liability" multiplied by the
Contributing Partner's "net equity percentage" in the contributed property. The
Contributing Partner's net equity percentage in the transferred property
generally should be equal to the percentage determined by dividing (x) the
amount of cash or other consideration (excluding AIMCO OP Units) received by the
Contributing Partner that is treated as proceeds realized from a disguised sale
of the transferred property, by (y) the excess of the gross fair market value of
the property at the time of transfer over any "qualified liabilities"
encumbering the property.
TERMINATION OF THE AIMCO OPERATING PARTNERSHIP
In the event of the dissolution of the AIMCO Operating Partnership, a
distribution of partnership property (other than money and marketable
securities) will not result in taxable gain to an OP Unitholder (except to the
extent provided in section 737 of the Code for liquidations occurring within
seven years of the date of contribution by an OP Unitholder of property to the
AIMCO Operating Partnership), and the OP Unitholder will hold such distributed
property with a basis equal to the adjusted basis of such OP Units exchanged
therefor, reduced by any money distributed in liquidation. Further, the
liquidation of the AIMCO Operating Partnership generally will be taxable to a
holder of OP Units to the extent that the value of any money and marketable
securities distributed in liquidation (including any money deemed distributed as
a result of relief from liabilities) exceeds such OP Unitholder's tax basis in
his OP Units.
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ALTERNATIVE MINIMUM TAX
The Code contains different sets of minimum tax rules applicable to
corporate and noncorporate investors. The discussion below relates only to the
alternative minimum tax applicable to noncorporate taxpayers. Accordingly,
corporate investors should consult with their tax advisors with respect to the
effect of the corporate minimum tax provisions that may be applicable to them.
Noncorporate taxpayers are subject to an alternative minimum tax to the extent
the tentative minimum tax ("TMT") exceeds the regular income tax otherwise
payable. The rate of tax imposed on the alternative minimum taxable income
("AMTI") in computing TMT is 26% on the first $175,000 of alternative minimum
taxable income in excess of an exemption amount and 28% on any additional
alternative minimum taxable income of noncorporate investors. In general, AMTI
consists of the taxpayer's taxable income, determined with certain adjustments,
plus his items of tax preference. For example, alternative minimum taxable
income is calculated using an alternative cost recovery (depreciation) system
that is not as favorable as the methods provided for under section 168 of the
Code which the AIMCO Operating Partnership will use in computing its income for
regular Federal income tax purposes. Accordingly, an OP Unitholder's AMTI
derived from the AIMCO Operating Partnership may be higher than such OP
Unitholder's share of the AIMCO Operating Partnership's net taxable income.
Prospective investors should consult their tax advisors as to the impact of an
investment in OP Units on their liability for the alternative minimum tax.
INFORMATION RETURNS AND AUDIT PROCEDURES
The AIMCO Operating Partnership will use all reasonable efforts to furnish
to each OP Unitholder within 90 days of the close of each taxable year of the
AIMCO Operating Partnership, certain tax information, including a Schedule K-l,
which sets forth each OP Unitholder's allocable share of the AIMCO Operating
Partnership's Partnership Tax Items. In preparing this information AIMCO-GP will
use various accounting and reporting conventions to determine the respective OP
Unitholder's allocable share of Partnership Tax Items. The General Partner
cannot assure a current or prospective OP Unitholder that the IRS will not
successfully contend in court that such accounting and reporting conventions are
impermissible.
No assurance can be given that the AIMCO Operating Partnership will not be
audited by the IRS or that tax adjustments will not be made. Further, any
adjustments in the AIMCO Operating Partnership's tax returns will lead to
adjustments in OP Unitholders' tax returns and may lead to audits of their
returns and adjustments of items unrelated to the AIMCO Operating Partnership.
Each OP Unitholder would bear the cost of any expenses incurred in connection
with an examination of such OP Unitholder's personal tax return.
Partnerships generally are treated as separate entities for purposes of
Federal income tax, judicial review of administrative adjustments by the IRS and
tax settlement proceedings. The tax treatment of Partnership Tax Items generally
are determined at the partnership level in a unified partnership proceeding
rather than in separate proceedings with the partners. The Code provides for one
partner to be designated as the Tax Matters Partner for these purposes.
The Tax Matters Partner is authorized, but not required, to take certain
actions on behalf of the AIMCO Operating Partnership and OP Unitholders and can
extend the statute of limitations for assessment of tax deficiencies against OP
Unitholders with respect to the AIMCO Operating Partnership Tax Items. The Tax
Matters Partner may bind an OP Unitholder with less than a l% profits interest
in the AIMCO Operating Partnership to a settlement with the IRS, unless such OP
Unitholder elects, by filing a statement with the IRS, not to give such
authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial
review (to which all the OP Unitholders are bound) of a final partnership
administrative adjustment and, if the Tax Matters Partner fails to seek judicial
review, such review may be sought by any OP Unitholder having at least a 1%
interest in the profits of the AIMCO Operating Partnership or by OP Unitholders
having in the aggregate at least a 5% profits interest. However, only one action
for judicial review will go forward, and each OP Unitholder with an interest in
the outcome may participate.
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TAXATION OF FOREIGN OP UNITHOLDERS
A Non-U.S. Holder (as defined below under "Federal Income Taxation of AIMCO
and AIMCO Stockholders -- Taxation of Foreign Stockholders") will generally be
considered to be engaged in a United States trade or business on account of its
ownership of an OP Unit. As a result, a Non-U.S. Holder will be required to file
Federal income tax returns with respect to its allocable share of the AIMCO
Operating Partnership's income which is effectively connected to its trade or
business. A Non-U.S. Holder that is a corporation may also be subject to United
States branch profit tax at a rate of 30%, in addition to regular Federal income
tax, on its allocable share of such income. Such a tax may be reduced or
eliminated by an income tax treaty between the United States and the country
with respect to which the Non-U.S. Holder is resident for tax purposes. Non-U.S.
Holders are advised to consult their tax advisors regarding the effects an
investment in the AIMCO Operating Partnership may have on information return
requirements and other United States and non-United States tax matters,
including the tax consequences of an investment in the AIMCO Operating
Partnership for the country or other jurisdiction of which such Non-U.S. Holder
is a citizen or in which such Non-U.S. Holder resides or is otherwise located.
STATE, LOCAL AND FOREIGN TAXES
The AIMCO Operating Partnership and OP Unitholders may be subject to state,
local or foreign taxation in various jurisdictions, including those in which it
or they transact business, own property or reside. It should be noted that the
AIMCO Operating Partnership owns properties located in a number of states and
local jurisdictions, and the AIMCO Operating Partnership and OP Unitholders may
be required to file income tax returns in some or all of those jurisdictions.
The state, local or foreign tax treatment of the AIMCO Operating Partnership and
OP Unit holders may not conform to the Federal income tax consequences discussed
above. Consequently, prospective investors are urged to consult their tax
advisors regarding the application and effect of state, local foreign tax laws
of an investment in the AIMCO Operating Partnership.
TAXATION OF AIMCO AND AIMCO STOCKHOLDERS
GENERAL
The REIT provisions of the Code are highly technical and complex. The
following summary sets forth certain aspects of the provisions of the Code that
govern the Federal income tax treatment of a REIT and its stockholders. This
summary is qualified in its entirety by the applicable Code provisions, Treasury
Regulations, and administrative and judicial interpretations thereof, all of
which are subject to change, possibly with retroactive effect.
AIMCO has elected to be taxed as a REIT under the Code commencing with its
taxable year ending December 31, 1994, and AIMCO intends to continue such
election. Although AIMCO believes that, commencing with the AIMCO's initial
taxable year ended December 31, 1994, AIMCO was organized in conformity with the
requirements for qualification as a REIT, and its actual method of operation has
enabled, and its proposed method of operation will enable, it to meet the
requirements for qualification and taxation as a REIT under the Code, no
assurance can be given that AIMCO has been or will remain so qualified. Such
qualification and taxation as a REIT depends upon AIMCO's ability to meet,
through actual annual operating results, distribution levels and diversity of
stock ownership, the various qualification tests imposed under the Code as
discussed below. No assurance can be given that the actual results of AIMCO's
operation for any taxable year satisfy such requirements. See "United States
Federal Income Tax Consequences -- Taxation of AIMCO and AIMCO
Stockholders -- Failure to Qualify." No assurance can be given that the IRS will
not challenge AIMCO's eligibility for taxation as a REIT.
Provided AIMCO qualifies for taxation as a REIT, it will generally not be
subject to Federal corporate income tax on its net income that is currently
distributed to its stockholders. This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that generally
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results from investment in a corporation. However, notwithstanding AIMCO's
qualification as a REIT, AIMCO will be subject to Federal income tax as follows:
- First, AIMCO will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital
gains.
- Second, under certain circumstances, AIMCO may be subject to the
"alternative minimum tax" on its items of tax preference.
- Third, if AIMCO has net income from prohibited transactions (which are,
in general, certain sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business other
than foreclosure property), such income will be subject to a 100% tax.
- Fourth, if AIMCO should fail to satisfy the 75% gross income test or the
95% gross income test (as discussed below), but has nonetheless
maintained its qualification as a REIT because certain other requirements
have been met, it will be subject to a 100% tax on an amount equal to (a)
the gross income attributable to the greater of the amount by which AIMCO
fails the 75% or 95% test multiplied by (b) a fraction intended to
reflect AIMCO's profitability.
- Fifth, if AIMCO should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain net income for such year (other than certain
long-term capital gains that AIMCO elects to retain and pay the tax
thereon), and (iii) any undistributed taxable income from prior periods,
AIMCO would be subjected to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed.
- Sixth, a 100% excise tax may be imposed on some items of income expense
that are directly or constructively paid between a REIT and a taxable
REIT subsidiary (as described below) if and to the extent that the IRS
successfully adjusts the reported amounts of these items.
- Seventh, if AIMCO acquires assets from a corporation that is not a REIT
(a "subchapter C corporation") in a transaction in which the adjusted tax
basis of the assets in the hands of AIMCO is determined by reference to
the adjusted tax basis of such assets in the hands of the subchapter C
corporation, under Temporary Treasury Regulations, the subchapter C
corporation would be required to recognize any net Built-In Gain (as
defined below) that would have been realized if the Subchapter C
corporation had liquidated on the day before the date of the transfer.
Pursuant to such Regulations, AIMCO may elect, in lieu of the treatment
described above, to be subject to tax at the highest regular corporate
tax rate on any gain it recognizes on the disposition of any such asset
during the ten-year period beginning on the day on which AIMCO acquires
such asset to the extent of the excess, if any, of the fair market value
over the adjusted basis of such asset as of its acquisition date
("Built-in Gain"). AIMCO intends to make such an election and, therefore,
will be taxed at the highest regular corporate rate on such Built-in Gain
if, and to the extent, such assets are sold within the specified ten-year
period. It should be noted that AIMCO has acquired (and may acquire in
the future) a significant amount of assets with Built-in Gain and a
taxable disposition by AIMCO of any of these assets within ten years of
their acquisitions would subject AIMCO to tax under the foregoing rule.
- Eighth, certain of AIMCO's subsidiaries are subchapter C corporations,
the earnings of which are subject to Federal corporate income tax.
- Ninth, AIMCO could be subject to foreign taxes on its investments and
activities in foreign jurisdictions. In addition, AIMCO could also be
subject to tax in certain situations and on certain transactions not
presently contemplated.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association:
- that is managed by one or more trustees or directors;
- the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest;
91
- which would be taxable as a domestic corporation, but for the special
Code provisions applicable to REITs;
- that is neither a financial institution nor an insurance company subject
to certain provisions of the Code;
- the beneficial ownership of which is held by 100 or more persons;
- in which, during the last half of each taxable year, not more than 50% in
value of the outstanding stock is owned, directly or indirectly, by five
or fewer individuals (as defined in the Code to include certain
entities); and
- which meets certain other tests described below (including with respect
to the nature of its income and assets).
The Code provides that the first four conditions must be met during the
entire taxable year, and that the fifth condition must be met during at least
335 days of a taxable year of 12 months, or during a proportionate part of a
taxable year of less than 12 months. The charter provides certain restrictions
regarding transfers of its shares, which provisions are intended to assist AIMCO
in satisfying the share ownership requirements described in the fifth and sixth
conditions above.
To monitor AIMCO's compliance with the share ownership requirements, AIMCO
is required to maintain records regarding the actual ownership of its shares. To
do so, AIMCO must demand written statements each year from the record holders of
certain percentages of its stock in which the record holders are to disclose the
actual owners of the shares (i.e., the persons required to include in gross
income the REIT dividends). A list of those persons failing or refusing to
comply with this demand must be maintained as part of AIMCO's records. A
stockholder who fails or refuses to comply with the demand must submit a
statement with its tax return disclosing the actual ownership of the shares and
certain other information.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. AIMCO satisfies this requirement.
Ownership of Partnership Interests. In the case of a REIT that is a
partner in a partnership, Treasury Regulations provide that the REIT is deemed
to own its proportionate share of the partnership's assets and to earn its
proportionate share of the partnership's income. In addition, the assets and
gross income of the partnership retain the same character in the hands of the
REIT for purposes of the gross income and asset tests applicable to REITs as
described below. Thus, AIMCO's proportionate share of the assets, liabilities
and items of income of the Subsidiary Partnerships will be treated as assets,
liabilities and items of income of AIMCO for purposes of applying the REIT
requirements described herein. A summary of certain rules governing the Federal
income taxation of partnerships and their partners is provided below in
"-- Taxation of AIMCO and AIMCO Stockholders -- Tax Aspects of AIMCO's
Investments in Partnerships."
Income Tests. In order to maintain qualification as a REIT, AIMCO annually
must satisfy two gross income requirements:
- First, at least 75% of AIMCO's gross income (excluding gross income from
"prohibited transactions," i.e., certain sales of property held primarily
for sale to customers in the ordinary course of business) for each
taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents
from real property" and, in certain circumstances, interest) or from
certain types of temporary investments.
- Second, at least 95% of AIMCO's gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived from such
real property investments, and from dividends, interest and gain from the
sale or disposition of stock or securities (or from any combination of
the foregoing).
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Rents received by AIMCO through the Subsidiary Partnerships will qualify as
"rents from real property" in satisfying the gross income requirements described
above, only if several conditions are met, including the following. Amounts
received from the rental of up to 10% of a property to a taxable REIT subsidiary
will qualify as "rents from real property" so long as the rents received from
the taxable REIT subsidiary are substantially comparable to rents received from
other tenants of the property for comparable space. If rent attributable to
personal property leased in connection with a lease of real property is greater
than 15% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." Moreover, for rents received to qualify as "rents from real
property," the REIT generally must not furnish or render services to the tenants
of such property, other than through an "independent contractor" from which the
REIT derives no revenue or through a taxable REIT subsidiary. AIMCO (or its
affiliates) is also permitted to directly perform services that are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and are not otherwise considered rendered to the occupant of the property. In
addition, AIMCO (or its affiliates) may provide non-customary services to
tenants of its properties without disqualifying all of the rent from the
property if the payment for such services does not exceed 1% of the total gross
income from the property. For purposes of this test, the income received from
such non-customary services is deemed to be at least 150% of the direct cost of
providing the services.
If any amount of interest, rent, or other deductions of a taxable REIT
subsidiary for amounts paid to AIMCO is determined by the IRS to be other than
at arm's length, a 100 percent excise tax is imposed on the portion that is
excessive.
AIMCO manages apartment properties for third parties and affiliates through
subsidiaries that AIMCO refers to as "management companies." The management
companies receive management fees and other income. A portion of such fees and
other income accrue to AIMCO through distributions from the management companies
that are classified as dividend income to the extent of the earnings and profits
of the management companies. Such distributions will generally qualify under the
95% gross income test but not under the 75% gross income test.
If AIMCO fails to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, it may nevertheless qualify as a REIT for such year if it
is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if AIMCO's failure to meet such tests was
due to reasonable cause and not due to willful neglect, AIMCO attaches a
schedule of the sources of its income to its return, and any incorrect
information on the schedule was not due to fraud with intent to evade tax. It is
not possible, however, to state whether in all circumstances AIMCO would be
entitled to the benefit of these relief provisions. If these relief provisions
are inapplicable to a particular set of circumstances involving AIMCO, AIMCO
will not qualify as a REIT. As discussed above in "-- Taxation of AIMCO and
AIMCO Stockholders -- General," even where these relief provisions apply, a tax
is imposed with respect to the excess net income.
Asset Tests. AIMCO, at the close of each quarter of its taxable year, must
also satisfy three tests relating to the nature of its assets:
- First, at least 75% of the value of AIMCO's total assets must be
represented by real estate assets (including its allocable share of real
estate assets held by the Subsidiary Partnerships), certain stock or debt
instruments purchased by AIMCO with new capital, cash, cash items and
U.S. government securities.
- Second, not more than 25% of AIMCO's total assets may be represented by
securities other than those in the 75% asset class.
- Third, of the investments included in the 25% asset class, the value of
any one issuer's securities owned by AIMCO may not exceed 5% of the value
of AIMCO's total assets, and AIMCO may not own more than 10% of the total
value or the total voting power of the outstanding securities of any one
issuer. The 5% and 10% asset limitations described above do not apply to
electing taxable REIT subsidiary corporations.
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- Fourth, the value of the stock held by AIMCO in taxable REIT subsidiaries
(including the management companies) may not, however, exceed, in the
aggregate, 20% of the value of AIMCO's total assets.
AIMCO indirectly owns interests in the management companies that have
elected to be taxable REIT subsidiaries. As set forth above, the ownership of
more than 10% of the total value or the total voting power of the outstanding
voting securities of any one issuer by a REIT, or the investment of more than 5%
of the REIT's total assets in any one issuer's securities, is prohibited by the
asset tests. AIMCO believes that its indirect ownership interests in the
management companies qualify under the asset tests set forth above. In addition,
AIMCO believes that the value of the stock held by AIMCO in electing taxable
REIT subsidiaries will not exceed, in the aggregate, 20% of the value of AIMCO's
total assets. However, no independent appraisals have been obtained to support
AIMCO's conclusions as to the value of the AIMCO Operating Partnership's total
assets and the value of the AIMCO Operating Partnership's interest in the
management companies and these values are subject to change in the future.
Furthermore, under legislation effective January 1, 2001, the operation or
management of a health care or lodging facility precludes qualification as a
taxable REIT subsidiary, and therefore precludes the REIT from relying upon this
exception to the 10% ownership restriction. Consequently, if any of the
management companies were deemed to operate or manage a health care or lodging
facility, such management companies would fail to qualify as taxable REIT
subsidiaries, and AIMCO would fail to qualify as a REIT. AIMCO believes that, as
of January 1, 2001, none of the management companies operate or manage any
health care or lodging facilities. However, the statute provides little guidance
as to the definition of a health care or lodging facility. Accordingly, there
can be no assurances that the IRS will not contend that any of the management
companies operate or manage a health care or lodging facility, disqualifying it
from treatment as a taxable REIT subsidiary, and thereby resulting in the
disqualification of AIMCO as a REIT.
Notwithstanding the general rule that a REIT is treated as owning its share
of the underlying assets of the partnership, for purposes of the REIT income and
asset tests, if a REIT holds indebtedness issued by a partnership, the
indebtedness will be subject to, and may cause a violation of the asset tests,
resulting in lost REIT status, unless it is a qualifying mortgage asset or
otherwise satisfies the rules for "straight debt." However, no independent
appraisals have been obtained to support AIMCO's conclusions as to the value of
the AIMCO Operating Partnership's total assets and the value of the AIMCO
Operating Partnership's interest in the taxable REIT subsidiaries and these
values are subject to change in the future. Accordingly, there can be no
assurance that the IRS will not contend that AIMCO's interests in its
subsidiaries or in the securities of other issuers will cause a violation of the
REIT asset requirements and loss of REIT status.
AIMCO believes that its holding of securities and other assets have
complied and will continue to comply with the foregoing REIT asset requirements
and it intends to monitor compliance on an ongoing basis.
AIMCO's indirect interests in the AIMCO Operating Partnership and other
Subsidiary Partnerships are held through wholly owned corporate subsidiaries of
AIMCO organized and operated as "qualified REIT subsidiaries" within the meaning
of the Code. Qualified REIT subsidiaries are not treated as separate entities
from their parent REIT for Federal income tax purposes. Instead, all assets,
liabilities and items of income, deduction and credit of each qualified REIT
subsidiary are treated as assets, liabilities and items of AIMCO. Each qualified
REIT subsidiary therefore is not subject to Federal corporate income taxation,
although it may be subject to state or local taxation. In addition, AIMCO's
ownership of the stock of each qualified REIT subsidiary does not violate the
general restriction against ownership of more than 10% of the total value or
total voting power of the outstanding securities of any issuer.
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Annual Distribution Requirements. In order for AIMCO to qualify as a REIT,
AIMCO is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to:
- the sum of:
(i) 90% of AIMCO's "REIT taxable income" (computed without regard to
the dividends-paid deduction and AIMCO's net capital gain, i.e., the excess
of net long-term capital gain over net short-term capital loss) and
(ii) 90% of the net income (after tax), if any, from foreclosure
property, minus
- the sum of certain items of noncash income.
Such distributions must be paid in the taxable year to which they relate,
or in the following taxable year if declared before AIMCO timely files its tax
return for such year and if paid with or before the first regular dividend
payment after such declaration. To the extent that AIMCO distributes at least
90%, but less than 100%, of its "REIT taxable income," as adjusted, it will be
subject to tax thereon at ordinary corporate tax rates. AIMCO may elect to
retain, rather than distribute, its net long-term capital gains and pay tax on
such gains. In such a case, AIMCO's stockholders would include their
proportionate share of such undistributed long-term capital gains in income and
receive a credit for their share of the tax paid by AIMCO. AIMCO's stockholders
would then increase the adjusted basis of their AIMCO shares by the difference
between the designated amounts included in their long-term capital gains and the
tax deemed paid with respect to their shares. If AIMCO should fail to distribute
during each calendar year at least the sum of
(i) 85% of its REIT ordinary income for such year and
(ii) 95% of its REIT capital gain net income for such year (excluding
retained long-term capital gains), and
(iii) any undistributed taxable income from prior periods,
AIMCO would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. AIMCO believes that it has
made, and intends to make, timely distributions sufficient to satisfy these
annual distribution requirements.
It is possible that AIMCO, from time to time, may not have sufficient cash
to meet the 90% distribution requirement due to timing differences between (i)
the actual receipt of cash (including receipt of distributions from the AIMCO
Operating Partnership) and (ii) the inclusion of certain items in income by
AIMCO for Federal income tax purposes. In the event that such timing differences
occur, in order to meet the 90% distribution requirement, AIMCO may find it
necessary to arrange for short-term, or possibly long-term, borrowings, or to
pay dividends in the form of taxable distributions of property.
Under certain circumstances, AIMCO may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in AIMCO's deduction for
dividends paid for the earlier year. Thus, AIMCO may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, AIMCO will be
required pay interest and a penalty based on the amount of any deduction taken
for deficiency dividends.
Failure to Qualify. If AIMCO fails to qualify for taxation as a REIT in
any taxable year, and the relief provisions do not apply, AIMCO will be subject
to tax (including any applicable alternative minimum tax) on its taxable income
at regular corporate rates. Distributions to stockholders in any year in which
AIMCO fails to qualify will not be deductible by AIMCO nor will they be required
to be made. In such event, to the extent of current and accumulated earnings and
profits, all distributions to stockholders will be taxable as ordinary income,
and, subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends received deduction. Unless AIMCO is entitled to
relief under specific statutory provisions, AIMCO would also be disqualified
from taxation as a REIT for the four taxable years
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following the year during which qualification was lost. It is not possible to
state whether in all circumstances AIMCO would be entitled to such statutory
relief.
TAX ASPECTS OF AIMCO'S INVESTMENTS IN PARTNERSHIPS
General. Substantially all of AIMCO's investments are held indirectly
through the AIMCO Operating Partnership. In general, partnerships are
"pass-through" entities that are not subject to Federal income tax. Rather,
partners are allocated their proportionate shares of the items of income, gain,
loss, deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. AIMCO will include in its income its proportionate share of the
foregoing partnership items for purposes of the various REIT income tests and in
the computation of its REIT taxable income. Moreover, for purposes of the REIT
asset tests, AIMCO will include its proportionate share of assets held by the
Subsidiary Partnerships. See "-- Taxation of AIMCO and AIMCO
Stockholders -- General."
Entity Classification. AIMCO's direct and indirect investment in
partnerships involves special tax considerations, including the possibility of a
challenge by the IRS of the status of any of the Subsidiary Partnerships as a
partnership (as opposed to as an association taxable as a corporation) for
Federal income tax purposes. If any of these entities were treated as an
association for Federal income tax purposes, it would be subject to an
entity-level tax on its income. In such a situation, the character of AIMCO's
assets and items of gross income would change and could preclude AIMCO from
satisfying the asset tests and the income tests (see "United States Federal
Income Tax Consequences -- Taxation of AIMCO and AIMCO Stockholders -- Asset
Tests" and "United States Federal Income Tax Consequences -- Taxation of AIMCO
and AIMCO Stockholders -- Income Tests"), and in turn could prevent AIMCO from
qualifying as a REIT. See "United States Federal Income Tax
Consequences -- Taxation of AIMCO and AIMCO Stockholders -- Failure to Qualify"
above for a discussion of the effect of AIMCO's failure to meet such tests for a
taxable year. In addition, any change in the status of any of the Subsidiary
Partnerships for tax purposes might be treated as a taxable event, in which case
AIMCO might incur a tax liability without any related cash distributions.
Tax Allocations With Respect to the Properties. Under the Code and the
Treasury Regulations, income, gain, loss and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated in a manner such
that the Contributing Partner is charged with, or benefits from, respectively,
the unrealized gain or unrealized loss associated with the property at the time
of the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of the
contributed property at the time of contribution, and the adjusted tax basis of
such property at the time of contribution (a "Book-Tax Difference"). Such
allocations are solely for Federal income tax purposes and do not affect the
book capital accounts or other economic or legal arrangements among the
partners. The AIMCO Operating Partnership was formed by way of contributions of
appreciated property. Consequently, allocations must be made in a manner
consistent with these requirements. Where a partner contributes cash to a
partnership that holds appreciated property, Treasury Regulations provide for a
similar allocation of such items to the other partners. These rules apply to the
contribution by AIMCO to the AIMCO Operating Partnership of the cash proceeds
received in any offerings of its stock.
In general, certain OP Unitholders will be allocated lower amounts of
depreciation deductions for tax purposes and increased taxable income and gain
on the sale by the AIMCO Operating Partnership or other Subsidiary Partnerships
of the contributed properties. This will tend to eliminate the Book-Tax
Difference over the life of these partnerships. However, the special allocations
do not always entirely rectify the Book-Tax Difference on an annual basis or
with respect to a specific taxable transaction such as a sale. Thus, the
carryover basis of the contributed properties in the hands of the AIMCO
Operating Partnership or other Subsidiary Partnerships may cause AIMCO to be
allocated lower depreciation and other deductions, and possibly greater amounts
of taxable income in the event of a sale of such contributed assets in excess of
the economic or book income allocated to it as a result of such sale. This may
cause AIMCO to recognize taxable income in excess of cash proceeds, which might
adversely affect AIMCO's
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ability to comply with the REIT distribution requirements. See "-- Taxation of
AIMCO and AIMCO Stockholders -- Annual Distribution Requirements."
With respect to any property purchased or to be purchased by any of the
Subsidiary Partnerships (other than through the issuance of OP Units) subsequent
to the formation of AIMCO, such property will initially have a tax basis equal
to its fair market value and the special allocation provisions described above
will not apply.
Sale of the Properties. AIMCO's share of any gain realized by the AIMCO
Operating Partnership or any other Subsidiary Partnership on the sale of any
property held as inventory or primarily for sale to customers in the ordinary
course of business will be treated as income from a prohibited transaction that
is subject to a 100% penalty tax. See "-- United States Taxation of AIMCO and
AIMCO Stockholders -- Income Tests." Under existing law, whether property is
held as inventory or primarily for sale to customers in the ordinary course of a
partnership's trade or business is a question of fact that depends on all the
facts and circumstances with respect to the particular transaction. The AIMCO
Operating Partnership and the other Subsidiary Partnerships intend to hold their
properties for investment with a view to long-term appreciation, to engage in
the business of acquiring, developing, owning and operating the properties and
to make such occasional sales of the properties, including peripheral land, as
are consistent with AIMCO's investment objectives.
TAXATION OF MANAGEMENT COMPANIES
A portion of the amounts to be used to fund distributions to stockholders
is expected to come from distributions made by the management companies to the
AIMCO Operating Partnership, and interest paid by the management companies on
certain notes held by the AIMCO Operating Partnership. In general, the
management companies pay Federal, state and local income taxes on their taxable
income at normal corporate rates. Any Federal, state or local income taxes that
the management companies are required to pay will reduce AIMCO's cash flow from
operating activities and its ability to make payments to holders of its
securities.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
Distributions. Provided that AIMCO qualifies as a REIT, distributions made
to AIMCO's taxable domestic stockholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends
received deduction for corporations. Distributions (and retained long-term
capital gains) that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent that they do not exceed AIMCO's actual
net capital gain for the taxable year) without regard to the period for which
the stockholder has held its stock. However, corporate stockholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. In addition, net capital gains attributable to the sale of depreciable
real property held for more than 12 months are subject to a 25% maximum Federal
income tax rate to the extent of previously claimed real property depreciation.
Distributions in excess of current and accumulated earnings and profits
will not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's shares in respect of which the distributions
were made, but rather will reduce the adjusted basis of such shares. To the
extent that such distributions exceed the adjusted basis of a stockholder's
shares in respect of which the distributions were made, they will be included in
income as long-term capital gain (or short-term capital gain if the shares have
been held for one year or less) provided that the shares are a capital asset in
the hands of the stockholder. In addition, any dividend declared by AIMCO in
October, November or December of any year and payable to a stockholder of record
on a specified date in any such month will be treated as both paid by AIMCO and
received by the stockholder on December 31 of such year, provided that the
dividend is actually paid by AIMCO during January of the following calendar
year. Stockholders may not include in their individual income tax returns any
net operating losses or capital losses of AIMCO.
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Dispositions of AIMCO Stock. Capital gains recognized by individuals and
other non-corporate taxpayers upon the sale or disposition of AIMCO Stock held
for more than one year at the time of disposition will be long-term capital
gains and will be short-term capital gains if the AIMCO Stock is held for one
year or less. Capital losses recognized by a stockholder upon the disposition of
AIMCO Stock held for more than one year at the time of disposition will be a
long-term capital loss. In addition, any loss upon a sale or exchange of shares
of AIMCO Stock by a stockholder who has held such shares for six months or less
(after applying certain holding period rules) will be treated as a long-term
capital loss to the extent of distributions from AIMCO required to be treated by
such stockholder as long-term capital gain.
TAXATION OF FOREIGN STOCKHOLDERS
The following is a discussion of anticipated Federal income and estate tax
consequences of the ownership and disposition of AIMCO stock applicable to
Non-U.S. Holders of AIMCO stock. A "Non-U.S. Holder" is generally any person
other than (i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in the United States or under the laws of the
United States or of any state thereof or the District of Columbia, (iii) an
estate whose income is includible in gross income for Federal income tax
purposes regardless of its source or (iv) a trust if a United States court is
able to exercise primary supervision over the administration of such trust and
one or more United States fiduciaries have the authority to control all
substantial decisions of such trust. The discussion is based on current law and
is for general information only. The discussion does not address all aspects of
Federal income and estate taxation.
Ordinary Dividends. The portion of dividends received by Non-U.S. Holders
payable out of AIMCO's earnings and profits which are not attributable to
capital gains of AIMCO and which are not effectively connected with a U.S. trade
or business of the Non-U.S. Holder will be subject to U.S. withholding tax at
the rate of 30% (unless reduced by treaty and the non-U.S. Holder provides
appropriate documentation regarding its eligibility for treaty benefits). In
general, Non-U.S. Holders will not be considered engaged in a U.S. trade or
business solely as a result of their ownership of AIMCO stock. In cases where
the dividend income from a Non-U.S. Holder's investment in AIMCO stock is (or is
treated as) effectively connected with the Non-U.S. Holder's conduct of a U.S.
trade or business, the Non-U.S. Holder generally will be subject to U.S. tax at
graduated rates, in the same manner as U.S. Holders are taxed with respect to
such dividends (and may also be subject to the 30% branch profits tax in the
case of a Non-U.S. Holder that is a corporation).
Non-Dividend Distributions. Unless AIMCO stock constitutes a United States
Real Property Interest (a "USRPI") within the meaning of the Foreign Investment
in Real Property Tax Act of 1980 ("FIRPTA"), distributions by AIMCO which are
not dividends out of the earnings and profits of AIMCO will not be subject to
United States income or withholding tax. If it cannot be determined at the time
a distribution is made whether or not such distribution will be in excess of
current and accumulated earnings and profits, the distribution will be subject
to withholding at the rate applicable to dividends. However, the Non-U.S. Holder
may seek a refund of such amounts from the IRS if it is subsequently determined
that such distribution was, in fact, in excess of current and accumulated
earnings and profits of AIMCO. If AIMCO stock constitutes a USRPI, such
distributions will be subject to 10% withholding and taxed pursuant to FIRPTA at
a rate of 35% to the extent such distributions exceed a stockholder's basis in
his or AIMCO stock.
Capital Gain Dividends. Under FIRPTA, a distribution made by AIMCO to a
Non-U.S. Holder, to the extent attributable to gains from dispositions of USRPIs
such as the properties beneficially owned by AIMCO ("USRPI Capital Gains"), will
be considered effectively connected with a U.S. trade or business of the
Non-U.S. Holder and subject to U.S. income tax at the rates applicable to U.S.
individuals or corporations, without regard to whether such distribution is
designated as a capital gain dividend. In addition, AIMCO will be required to
withhold tax equal to 35% of the amount of dividends to the extent such
dividends constitute USRPI Capital Gains. Distributions subject to FIRPTA may
also be subject to a 30% branch profits tax in the hands of Non-U.S. Holder that
is a corporation.
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Dispositions of AIMCO Stock. Unless AIMCO stock constitutes a USRPI, a
sale of such stock by a Non-U.S. Holder generally will not be subject to
taxation under FIRPTA. The AIMCO stock will not constitute a USRPI if AIMCO is a
"domestically controlled REIT." A domestically controlled REIT is a REIT in
which, at all times during specified testing period, less than 50% in value of
its shares is held directly or indirectly by Non-U.S. Holders. AIMCO believes
that it is, and it expects to continue to be, a domestically controlled REIT. If
AIMCO is, and continues to be, a domestically controlled REIT, the sale of AIMCO
stock should not be subject to taxation under FIRPTA. Because most classes of
stock of AIMCO are publicly traded, however, no assurance can be given that
AIMCO is or will continue to be a domestically controlled REIT.
Even if AIMCO does not constitute a domestically controlled REIT, a
Non-U.S. Holder's sale of AIMCO Stock generally will still not be subject to tax
under FIRPTA as a sale of a USRPI provided that:
- the stock is "regularly traded" (as defined by applicable Treasury
Regulations) on an established securities market (e.g., the New York
Stock Exchange, on which AIMCO Class A Common Stock is listed) and
- the selling Non-U.S. Holder held 5% or less of such class of AIMCO stock
at all times during a specified testing period.
If gain on the sale of stock of AIMCO were subject to taxation under
FIRPTA, the Non-U.S. Holder would be subject to the same treatment as a U.S.
stockholder with respect to such gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals) and the purchaser of the stock could be required to withhold 10% of
the purchase price and remit such amount to the IRS.
Gain from the sale of AIMCO stock that would not otherwise be subject to
taxation under FIRPTA will nonetheless be taxable in the United States to a
Non-U.S. Holder in two cases. First, if the Non-U.S. Holder's investment in the
AIMCO stock is effectively connected with a U.S. trade or business conducted by
such Non-U.S. Holder, the Non-U.S. Holder will be subject to the same treatment
as a U.S. stockholder with respect to such gain. Second, if the Non-U.S. Holder
is a nonresident alien individual who was present in the United States for 183
days or more during the taxable year and has a "tax home" in the United States,
the nonresident alien individual will be subject to a 30% tax on the
individual's capital gain.
Estate Tax. AIMCO stock owned or treated as owned by an individual who is
not a citizen or resident (as specially defined for Federal estate tax purposes)
of the United States at the time of death will be includible in the individual's
gross estate for Federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise. Such individual's estate may be subject to Federal
estate tax on the property includible in the estate for Federal estate tax
purposes.
Information Reporting Requirements And Backup Withholding. AIMCO will
report to its U.S. stockholders and to the IRS the amount of distributions paid
during each calendar year, and the amount of tax withheld, if any. Under the
backup withholding rules, a stockholder may be subject to backup withholding at
the rate of 30% with respect to distributions paid unless such holder (i) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact or (ii) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with the applicable requirements of the backup withholding rules. A
stockholder who does not provide AIMCO with his correct taxpayer identification
number also may be subject to penalties imposed by the IRS. Any amount paid as
backup withholding will be creditable against the stockholder's income tax
liability. In addition, AIMCO may be required to withhold a portion of capital
gain distributions to any Non-U.S. Holders. The IRS has issued final Treasury
Regulations regarding the withholding, backup withholding and information
reporting rules as applied to Non-U.S. Holders. Prospective investors in
securities should consult their tax advisors regarding the application of these
Treasury Regulations.
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TAXATION OF TAX-EXEMPT STOCKHOLDERS
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from Federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). The IRS has
privately ruled that dividend distributions from a REIT to an exempt employee
pension trust do not constitute UBTI, provided that the shares of the REIT are
not otherwise used in an unrelated trade or business of the exempt employee
pension trust. Based on that ruling, AIMCO believes that amounts distributed by
AIMCO to Exempt Organizations should generally not constitute UBTI. However, if
an Exempt Organization finances its acquisition of AIMCO stock with debt, a
portion of its income from AIMCO will constitute UBTI pursuant to the
"debt-financed property" rules. Furthermore, social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans that are exempt from taxation under paragraphs (7),
(9), (17) and (20), respectively, of section 501(c) of the Code are subject to
different UBTI rules, which generally will require them to characterize
distributions from AIMCO as UBTI. In addition, in certain circumstances, a
pension trust that owns more than 10% of AIMCO's stock is required to treat a
percentage of the dividends from AIMCO as UBTI (the "UBTI Percentage"). The UBTI
Percentage is the gross income derived by AIMCO from an unrelated trade or
business (determined as if AIMCO were a pension trust) divided by the gross
income of AIMCO for the year in which the dividends are paid. The UBTI rule
applies to a pension trust holding more than 10% of AIMCO's stock only if:
- the UBTI Percentage is at least 5%,
- AIMCO qualifies as a REIT by reason of the modification of the 5/50 Rule
that allows the beneficiaries of the pension trust to be treated as
holding shares of AIMCO in proportion to their actuarial interest in the
pension trust, and
- either (A) one pension trust owns more than 25% of the value of AIMCO's
stock or (B) a group of pension trusts each individually holding more
than 10% of the value of AIMCO's stock collectively owns more that 50% of
the value of AIMCO's stock.
The restrictions on ownership and transfer of AIMCO's stock should prevent
an Exempt Organization from owning more than 10% of the value of AIMCO's stock.
Legislative or Other Actions Affecting REITs. The rules dealing with
Federal income taxation are constantly under review by persons involved in the
legislative process and by the IRS and the U.S. Treasury Department. Changes to
the Federal laws and interpretations thereof could adversely affect an
investment in AIMCO or the AIMCO Operating Partnership. Congress recently
enacted legislation, generally effective in 2001, that, among other things:
- modifies the current ownership limitations to permit a REIT to own up to
100% of the voting securities and 100% of the value of the other
interests in a taxable REIT subsidiary. In addition, the 5% REIT asset
test would not apply to taxable REIT subsidiaries, but securities of
taxable REIT subsidiaries could not exceed 20% of the total value of a
REIT's assets;
- permits a taxable REIT subsidiary to perform services to a REIT's tenants
and imposes a 100% excise tax on certain non-arms length transactions
between a taxable REIT subsidiary and a REIT;
- disallows REIT status where healthcare or lodging facilities are operated
or managed by a taxable REIT subsidiary, beginning in 2001;
- generally restrict a REIT from owning more than 10% of the vote or value
of the securities of an issuer, including a partnership (taking into
account only the partnership's debt securities), an individual or a
non-REIT C corporation that is not a taxable REIT subsidiary;
- imposes certain limitations to the deductibility of interest paid by a
taxable REIT subsidiary to a related REIT;
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- allow a REIT to rent up to 10% of a property to a taxable REIT subsidiary
and generally have the rent qualify as good income for purposes of the
REIT gross income tests; and
- change the measurement of rent attributable to personal property leased
in connection with a lease of real property from a comparison based on
adjusted tax bases of properties to a comparison of fair market values.
We cannot predict whether, when, in what form, or with what effective
dates, other legislative proposals applicable to AIMCO or its stockholders will
become law or if the tax laws applicable to AIMCO, or an investment in AIMCO,
will be changed.
STATE, LOCAL AND FOREIGN TAXES
AIMCO and AIMCO stockholders may be subject to state, local or foreign
taxation in various jurisdictions, including those in which it or they transact
business, own property or reside. The state, local or foreign tax treatment of
AIMCO and its stockholders may not conform to the Federal income tax
consequences discussed above. Consequently, prospective investors are urged to
consult their tax advisors regarding the application and effect of state, local
foreign tax laws of an investment in AIMCO.
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DESCRIPTION OF OP UNITS AND
THE AIMCO OPERATING PARTNERSHIP AGREEMENT
The following description sets forth some general terms and provisions of
the OP Units and the agreement of limited partnership of the AIMCO Operating
Partnership. A copy of the agreement of limited partnership has been filed as an
exhibit to the registration statement of which this prospectus forms a part.
This description is qualified in its entirety by the terms of the agreement of
limited partnership.
GENERAL
The AIMCO Operating Partnership is a limited partnership organized under
the provisions of the Delaware Revised Uniform Limited Partnership Act (as
amended from time to time, or any successor to such statute, the "Delaware Act")
and upon the terms and subject to the conditions set forth in its agreement of
limited partnership. AIMCO-GP, Inc., a Delaware corporation and a wholly owned
subsidiary of AIMCO, is the sole general partner of the AIMCO Operating
Partnership. Another wholly owned subsidiary of AIMCO, AIMCO-LP, Inc., a
Delaware corporation (the "Special Limited Partner"), is a limited partner in
the AIMCO Operating Partnership. The term of the AIMCO Operating Partnership
commenced on May 16, 1994, and will continue until December 31, 2093, unless the
AIMCO Operating Partnership is dissolved sooner under the provisions of the
partnership agreement or as otherwise provided by law.
PURPOSE AND BUSINESS
The purpose and nature of the AIMCO Operating Partnership is to conduct any
business, enterprise or activity permitted by or under the Delaware Act,
including, but not limited to, (i) to conduct the business of ownership,
construction, development and operation of multifamily rental apartment
communities, (ii) to enter into any partnership, joint venture, business trust
arrangement, limited liability company or other similar arrangement to engage in
any business permitted by or under the Delaware Act, or to own interests in any
entity engaged in any business permitted by or under the Delaware Act, (iii) to
conduct the business of providing property and asset management and brokerage
services, whether directly or through one or more partnerships, joint ventures,
subsidiaries, business trusts, limited liability companies or other similar
arrangements, and (iv) to do anything necessary or incidental to the foregoing;
provided, however, such business and arrangements and interests may be limited
to and conducted in such a manner as to permit AIMCO, in the sole and absolute
discretion of AIMCO-GP, at all times to be classified as a REIT.
MANAGEMENT BY THE GENERAL PARTNER
Except as otherwise expressly provided in the partnership agreement, all
management powers over the business and affairs of the AIMCO Operating
Partnership are exclusively vested in AIMCO-GP. No limited partner (each, a
"Limited Partner") of the AIMCO Operating Partnership or any other person to
whom one or more OP Units have been transferred (each, an "Assignee") may take
part in the operations, management or control (within the meaning of the
Delaware Act) of the AIMCO Operating Partnership's business, transact any
business in the AIMCO Operating Partnership's name or have the power to sign
documents for or otherwise bind the AIMCO Operating Partnership. The General
Partner may not be removed by the Limited Partners with or without cause, except
with the consent of AIMCO-GP. In addition to the powers granted a general
partner of a limited partnership under applicable law or that are granted to
AIMCO-GP under any other provision of the partnership agreement, AIMCO-GP,
subject to the other provisions of the partnership agreement, has full power and
authority to do all things deemed necessary or desirable by it to conduct the
business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO
Operating Partnership and to effectuate the purposes of the AIMCO Operating
Partnership. The AIMCO Operating Partnership may incur debt or enter into other
similar credit, guarantee, financing or refinancing arrangements for any purpose
(including, without limitation, in connection with any acquisition of
properties) upon such terms as AIMCO-GP determines to be appropriate. The
General Partner is authorized to execute, deliver and perform specific
agreements and
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transactions on behalf of the AIMCO Operating Partnership without any further
act, approval or vote of the Limited Partners.
Restrictions on General Partner's Authority. The General Partner may not
take any action in contravention of the partnership agreement. The General
Partner may not, without the prior consent of the Limited Partners, undertake,
on behalf of the AIMCO Operating Partnership, any of the following actions or
enter into any transaction that would have the effect of such transactions: (i)
except as provided in the partnership agreement, amend, modify or terminate the
partnership agreement other than to reflect the admission, substitution,
termination or withdrawal of partners; (ii) make a general assignment for the
benefit of creditors or appoint or acquiesce in the appointment of a custodian,
receiver or trustee for all or any part of the assets of the AIMCO Operating
Partnership; (iii) institute any proceeding for bankruptcy on behalf of the
AIMCO Operating Partnership; or (iv) subject to specific exceptions, approve or
acquiesce to the transfer of the AIMCO Operating Partnership interest of
AIMCO-GP, or admit into the AIMCO Operating Partnership any additional or
successor General Partners.
Additional Limited Partners. The General Partner is authorized to admit
additional Limited Partners to the AIMCO Operating Partnership from time to
time, on terms and conditions and for such capital contributions as may be
established by AIMCO-GP in its reasonable discretion. The net capital
contribution need not be equal for all partners. No action or consent by the
Limited Partners is required in connection with the admission of any additional
Limited Partner. The General Partner is expressly authorized to cause the AIMCO
Operating Partnership to issue additional interests (i) upon the conversion,
redemption or exchange of any debt, OP Units or other securities issued by the
AIMCO Operating Partnership, (ii) for less than fair market value, so long as
AIMCO-GP concludes in good faith that such issuance is in the best interests of
AIMCO-GP and the AIMCO Operating Partnership, and (iii) in connection with any
merger of any other entity into the AIMCO Operating Partnership if the
applicable merger agreement provides that persons are to receive interests in
the AIMCO Operating Partnership in exchange for their interests in the entity
merging into the AIMCO Operating Partnership. Subject to Delaware law, any
additional partnership interests may be issued in one or more classes, or one or
more series of any of such classes, with such designations, preferences and
relative, participating, optional or other special rights, powers and duties as
shall be determined by AIMCO-GP, in its sole and absolute discretion without the
approval of any Limited Partner, and set forth in a written document thereafter
attached to and made an exhibit to the partnership agreement. Without limiting
the generality of the foregoing, AIMCO-GP has authority to specify (a) the
allocations of items of partnership income, gain, loss, deduction and credit to
each such class or series of partnership interests; (b) the right of each such
class or series of partnership interests to share in distributions; (c) the
rights of each such class or series of partnership interests upon dissolution
and liquidation of the AIMCO Operating Partnership; (d) the voting rights, if
any, of each such class or series of partnership interests; and (e) the
conversion, redemption or exchange rights applicable to each such class or
series of partnership interests. No person may be admitted as an additional
Limited Partner without the consent of AIMCO-GP, which consent may be given or
withheld in AIMCO-GP's sole and absolute discretion.
OUTSTANDING CLASSES OF UNITS
As of March 31, 2002, the AIMCO Operating Partnership had issued and
outstanding the following partnership interests:
LIQUIDATION
UNITS QUARTERLY PREFERENCE
CLASS OUTSTANDING DISTRIBUTION (PER UNIT)
----- ----------- ------------ -----------
Partnership Common Units.......................... 89,344,868 $ 0.82(1) N/A
Class B Partnership Preferred Units(2)............ 419,471 $ 1.78125(3) $100.00
Class C Partnership Preferred Units............... 2,400,000 $ 0.5625 $ 25.00
Class D Partnership Preferred Units............... 4,200,000 $ 0.546875 $ 25.00
Class G Partnership Preferred Units............... 4,050,000 $ 0.5859375 $ 25.00
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LIQUIDATION
UNITS QUARTERLY PREFERENCE
CLASS OUTSTANDING DISTRIBUTION (PER UNIT)
----- ----------- ------------ -----------
Class H Partnership Preferred Units............... 2,000,000 $ 0.59375 $ 25.00
Class I Partnership Preferred Units............... 0 $ 0.50(4) $ 25.00
Class J Partnership Preferred Units(5)............ 0 $ 2.375 $100.00
Class K Partnership Preferred Units(6)............ 4,340,559 $ 0.50(7) $ 25.00
Class L Partnership Preferred Units(8)............ 5,000,000 $ 0.50625(9) $ 25.00
Class M Partnership Preferred Units(10)........... 1,200,000 $ 0.53125(11) $ 25.00
Class N Partnership Preferred Units(12)........... 4,000,000 $ 0.5625(13) $ 25.00
Class O Partnership Preferred Units(14)........... 1,904,762 $ 1.18125(15) $ 52.50
Class P Partnership Preferred Units(16)........... 4,000,000 $ 0.5625(15)(17) $ 25.00
Class Q Partnership Preferred Units............... 2,530,000 $ 0.63125 $ 25.00
Class R Partnership Preferred Units............... 5,940,000 $ 0.625 $ 25.00
Class One Partnership Preferred Units............. 90,000 $ 2.00 $ 91.43(18)
Class Two Partnership Preferred Units............. 72,843 $ 0.50(19) $ 25.00
Class Three Partnership Preferred Units........... 1,535,363 $ 0.59375(20) $ 25.00
Class Four Partnership Preferred Units(21)........ 757,149 $ 0.50 $ 25.00
Class Five Partnership Preferred Units............ 68,671 0.82(22) N/A
Class Six Partnership Preferred Units(23)......... 808,238 $ 0.53125 $ 25.00
Class Seven Partnership Preferred Units........... 29,752 $ 0.59375(24) $ 25.00
Class Eight Partnership Preferred Units........... 6,250 0.82(25) N/A
Class Nine Partnership Preferred Units............ 1,239,519 $ 0.5625 $ 25.00
Class Ten Partnership Preferred Units............. 6,904,120 $ 2.00(26) $ 25.00
Class I High Performance Partnership Units........ 2,379,084 0.82(27) N/A(28)
Class II High Performance Partnership Units....... 5,000 0.82(27) N/A(28)
Class III High Performance Partnership Units...... 5,000 N/A(29) N/A(28)
Class IV High Performance Partnership Units....... 5,000 N/A(29) N/A(28)
---------------
(1) Pursuant to the partnership agreement of the AIMCO Operating Partnership,
the AIMCO Operating Partnership pays quarterly dividends of Available Cash.
See "-- Distributions." For the quarter ended March 31, 2002, the AIMCO
Operating Partnership paid distributions of $0.82 per OP Unit. However,
there can be no assurance as to future distributions.
(2) Each Class B Partnership Preferred Unit is convertible into approximately
3.28407 Partnership Common Units.
(3) Each Class B Partnership Preferred Unit entitles the holder to receive
quarterly cash distributions equal to the greater of $1.78125 or the
aggregate distribution then payable on the number of Partnership Common
Units into which such Class B Partnership Preferred Unit is then
convertible.
(4) Subject to adjustment on or after March 1, 2005.
(5) The Class J Partnership Preferred Units were converted into 2,500,000
Partnership Common Units in 1999.
(6) Subsequent to March 31, 2002, all of the Class K Partnership Preferred
Units were converted into 2,583,674 Partnership Common Units.
(7) Each Class K Partnership Preferred Unit entitles the holder to receive
preferred quarterly cash distributions equal to (i) from February 17, 1999
through February 17, 2002, the greater of $0.50 or the aggregate
distribution then payable on the number of Partnership Common Units into
which such Class K Partnership Preferred Unit is then convertible, and (ii)
from and after February 18,
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2002, the greater of $0.625 or the aggregate distribution then payable on
the number of Partnership Common Units into which such Class K Partnership
Units is then convertible.
(8) Each Class L Partnership Preferred Unit is convertible into approximately
0.5379 Partnership Common Units.
(9) Each Class L Partnership Preferred Unit entitles the holder to receive
preferred quarterly cash distributions equal to (i) from May 27, 1999
through May 27, 2002, the greater of $0.50625 or the aggregate distribution
then payable on the number of Partnership Common Units into which such
Class L Partnership Preferred Unit is then convertible, and (ii) from and
after May 28, 2002, the greater of $0.50625 or the aggregate distribution
then payable on the number of Partnership Common Units into which such
Class L Partnership Preferred Unit is then convertible.
(10) Each Class M Partnership Preferred Unit is convertible into approximately
0.5681818 Partnership Common Units.
(11) Each Class M Partnership Preferred Unit entitles the holder to receive
preferred quarterly cash distributions equal to (i) from January 13, 2000
through January 12, 2003, the greater of $0.53125 or the aggregate
distribution then payable on the number of Partnership Common Units into
which such Class M Partnership Preferred Unit is then convertible, and (ii)
from and after January 13, 2003, the greater of $0.578125 or the aggregate
distribution then payable on the number of Partnership Common Units into
which such Class M Partnership Preferred Unit is then convertible.
(12) Each Class N Partnership Preferred Unit is convertible into approximately
0.4762 Partnership Common Units.
(13) Subject to adjustment on a change of control.
(14) Each Class O Partnership Preferred Unit is convertible into approximately
one Partnership Common Unit.
(15) Subject to adjustment on a change of control.
(16) Each Class P Partnership Preferred Unit is convertible into 0.4464
Partnership Common Units.
(17) Each Class P Partnership Preferred Unit entitles the holder to receive
preferred quarterly cash distributions equal to the greater of $0.5625 or
the aggregate distribution then payable on the number of Partnership Common
Units into which the Class P Partnership Preferred Unit is then
convertible.
(18) The amount shown is estimated. The actual liquidation preference is based
on a formula that takes into account the dividend yield of AIMCO's Class D
Cumulative Preferred Stock and three other preferred stocks issued by other
companies.
(19) Subject to adjustment on or after March 1, 2005.
(20) Subject to adjustment on and after December 24, 2004.
(21) Each Class Four Partnership Unit is convertible into approximately 0.5556
Partnership Common Units.
(22) Each Class Five Partnership Preferred Unit receives the same distribution
as one Partnership Common Unit.
(23) Each Class Six Partnership Unit is convertible into 0.5 Partnership Common
Units.
(24) Subject to adjustment on or after November 9, 2005.
(25) Each Class Eight Partnership Preferred Unit receives the same distributions
as one Partnership Common Unit.
(26) The distribution is payable annually, commencing on December 31, 2002.
(27) Each unit entitles the holder to receive the same distribution as one
Partnership Common Unit.
(28) The units do not have a preference in liquidation.
(29) Each unit receives 1/100 of the distribution paid to one Partnership Common
Unit, subject to adjustment on January 1, 2003 (for Class III) and 2004
(for Class IV).
105
DISTRIBUTIONS
Subject to the rights of holders of any outstanding Preferred OP Units, the
partnership agreement requires AIMCO-GP to cause the AIMCO Operating Partnership
to distribute quarterly all, or such portion as AIMCO-GP may in its sole and
absolute discretion determine, of Available Cash (as defined in the partnership
agreement) generated by the AIMCO Operating Partnership during such quarter to
AIMCO-GP, AIMCO-LP and the other holders of OP Units on the record date
established by AIMCO-GP with respect to such quarter, in accordance with their
respective interests in the AIMCO Operating Partnership on such record date.
Holders of any other Preferred OP Units issued in the future may have priority
over AIMCO-GP, AIMCO-LP and holders of OP Units with respect to distributions of
Available Cash, distributions upon liquidation or other distributions.
Distributions payable with respect to any interest in the AIMCO Operating
Partnership that was not outstanding during the entire quarterly period in
respect of which any distribution is made will be prorated based on the portion
of the period that such interest was outstanding. The General Partner in its
sole and absolute discretion may distribute to the Limited Partners Available
Cash on a more frequent basis and provide for an appropriate record date. The
partnership agreement requires AIMCO-GP to take such reasonable efforts, as
determined by it in its sole and absolute discretion and consistent with the
requirements for qualification as a REIT, to cause the AIMCO Operating
Partnership to distribute sufficient amounts to enable AIMCO-GP to transfer
funds to AIMCO and enable AIMCO to pay stockholder dividends that will (i)
satisfy the requirements (the "REIT Requirements") for qualifying as a REIT
under the Internal Revenue Code and the applicable Treasury Regulations and (ii)
avoid any United States Federal income or excise tax liability of AIMCO.
While some of the debt instruments to which the AIMCO Operating Partnership
is a party, including its credit facilities, contain restrictions on the payment
of distributions to OP Unitholders, the debt instruments allow the AIMCO
Operating Partnership to distribute sufficient amounts to enable AIMCO-GP and
Special Limited Partner to transfer funds to AIMCO which are then used to pay
stockholder dividends thereby allowing AIMCO to meet the requirements for
qualifications as a REIT under the Internal Revenue Code.
Distributions in Kind. No OP Unitholder has any right to demand or receive
property other than cash as provided in the partnership agreement. The General
Partner may determine, in its sole and absolute discretion, to make a
distribution in kind of partnership assets to the OP Unitholders, and such
assets will be distributed in such a fashion as to ensure that the fair market
value is distributed and allocated in accordance with the partnership agreement.
Distributions Upon Liquidation. Subject to the rights of holders of any
outstanding Preferred OP Units, net proceeds from the sale or other disposition
of all or substantially all of the assets of the AIMCO Operating Partnership or
a related series of transactions that, taken together, result in the sale or
other disposition of all or substantially all of the assets of the AIMCO
Operating Partnership (a "Terminating Capital Transaction"), and any other cash
received or reductions in reserves made after commencement of the liquidation of
the AIMCO Operating Partnership, will be distributed to the OP Unitholders in
accordance with the partnership agreement.
Restricted Distributions. The partnership agreement prohibits the AIMCO
Operating Partnership and AIMCO-GP, on behalf of the AIMCO Operating
Partnership, from making a distribution to any OP Unitholder on account of its
interest in OP Units if such distribution would violate Section 17-607 of the
Delaware Act or other applicable law.
ALLOCATIONS OF NET INCOME AND NET LOSS
Partnership Common Units. Net Income (as defined in the partnership
agreement) and Net Loss (as defined in the partnership agreement) of the AIMCO
Operating Partnership will be determined and allocated with respect to each
fiscal year of the AIMCO Operating Partnership as of the end of each such year.
Except as otherwise provided in the partnership agreement, an allocation to an
OP Unitholder of a
106
share of Net Income or Net Loss will be treated as an allocation of the same
share of each item of income, gain, loss or deduction that is taken into account
in computing Net Income or Net Loss. Except as otherwise provided in the
partnership agreement and subject to the terms of any outstanding Preferred OP
Units, Net Income and Net Loss will be allocated to the holders of OP Units in
accordance with their respective OP Units at the end of each fiscal year. The
partnership agreement contains provisions for special allocations intended to
comply with certain regulatory requirements, including the requirements of
Treasury Regulations Sections 1.704-1(b) and 1.704-2. Except as otherwise
provided in the partnership agreement and subject to the terms of any
outstanding Preferred OP Units, for United States Federal income tax purposes
under the Internal Revenue Code and the Treasury Regulations, each partnership
item of income, gain, loss and deduction will be allocated among the OP
Unitholders in the same manner as its correlative item of "book" income, gain,
loss or deduction is allocated under the partnership agreement.
Preferred OP Units. Net income will be allocated to the holders of
Preferred OP Units for any fiscal year (and, if necessary, subsequent fiscal
years) to the extent that the holders of Preferred OP Units receive a
distribution on any Preferred OP Units (other than an amount included in any
redemption of Preferred OP Units). If any Preferred OP Units are redeemed, for
the fiscal year that includes such redemption (and, if necessary, for subsequent
fiscal years) (i) gross income and gain (in such relative proportions as
AIMCO-GP in its discretion will determine) will be allocated to the holders of
Preferred OP Units to the extent that the redemption amounts paid or payable
with respect to the Preferred OP Units so redeemed exceeds the aggregate capital
contributions (net of liabilities assumed or taken subject to by the AIMCO
Operating Partnership) per Preferred OP Unit allocable to the Preferred OP Units
so redeemed and (ii) deductions and losses (in such relative proportions as
AIMCO-GP in its discretion will determine) will be allocated to the holders of
Preferred OP Units to the extent that the aggregate capital contributions (net
of liabilities assumed or taken subject to by the AIMCO Operating Partnership)
per Preferred OP Unit allocable to the Preferred OP Units so redeemed exceeds
the redemption amount paid or payable with respect to the Preferred OP Units so
redeemed.
WITHHOLDING
The AIMCO Operating Partnership is authorized to withhold from or pay on
behalf of or with respect to each Limited Partner any amount of Federal, state,
local or foreign taxes that AIMCO-GP determines that the AIMCO Operating
Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner under the partnership
agreement.
RETURN OF CAPITAL
No partner is entitled to interest on its capital contribution or on such
partner's capital account. Except (i) under the rights of redemption set forth
in the partnership agreement, (ii) as provided by law, or (iii) under the terms
of any outstanding Preferred OP Units, no partner has any right to demand or
receive the withdrawal or return of its capital contribution from the AIMCO
Operating Partnership, except to the extent of distributions made under the
partnership agreement or upon termination of the AIMCO Operating Partnership.
Except to the extent otherwise expressly provided in the partnership agreement
and subject to the terms of any outstanding Preferred OP Units, no Limited
Partner or Assignee will have priority over any other Limited Partner or
Assignee either as to the return of capital contributions or as to profits,
losses or distributions.
REDEMPTION RIGHTS OF QUALIFYING PARTIES
After the first anniversary of becoming a holder of OP Units, each OP
Unitholder and some Assignees have the right, subject to the terms and
conditions set forth in the partnership agreement, to require the AIMCO
Operating Partnership to redeem all or a portion of the OP Units held by such
party in exchange for shares of Class A Common Stock or a cash amount equal to
the value of such shares, as the AIMCO Operating Partnership may determine (a
"Redemption"). See Section 8.6 of the partnership agreement included herewith as
Appendix A. On or before the close of business on the fifth business day
107
after an OP Unitholder gives AIMCO-GP a Notice of Redemption, the AIMCO
Operating Partnership may, in its sole and absolute discretion but subject to
the restrictions on the ownership of AIMCO stock imposed under AIMCO's charter
and the transfer restrictions and other limitations thereof, elect to cause
AIMCO to acquire some or all of the tendered OP Units from the tendering party
in exchange for Class A Common Stock, based on an exchange ratio of one share of
Class A Common Stock for each OP Unit, subject to adjustment as provided in the
partnership agreement. The partnership agreement does not obligate AIMCO or
AIMCO-GP to register, qualify or list any Class A Common Stock issued in
exchange for OP Units with the SEC, with any state securities commissioner,
department or agency, or with any stock exchange. Class A Common Stock issued in
exchange for OP Units under the partnership agreement will contain legends
regarding restrictions under the Securities Act of 1933 and applicable state
securities laws as AIMCO in good faith determines to be necessary or advisable
in order to ensure compliance with securities laws.
PARTNERSHIP RIGHT TO CALL LIMITED PARTNER INTERESTS
Notwithstanding any other provision of the partnership agreement, on and
after the date on which the aggregate percentage interests of the Limited
Partners, other than AIMCO-LP, are less than one percent (1%), the AIMCO
Operating Partnership will have the right, but not the obligation, from time to
time and at any time to redeem any and all outstanding Limited Partner interests
(other than AIMCO-LP's interest) by treating any Limited Partner as if such
Limited Partner had tendered for Redemption under the partnership agreement the
amount of OP Units specified by AIMCO-GP, in its sole and absolute discretion,
by notice to the Limited Partner.
TRANSFERS AND WITHDRAWALS
Restrictions on Transfer. The partnership agreement restricts the
transferability of OP Units. Any transfer or purported transfer of an OP Unit
not made in accordance with the partnership agreement will be null and void ab
initio. Until the expiration of one year from the date on which an OP Unitholder
acquired OP Units, subject to some exceptions, such OP Unitholder may not
transfer all or any portion of its OP Units to any transferee without the
consent of AIMCO-GP, which consent may be withheld in its sole and absolute
discretion. After the expiration of one year from the date on which an OP
Unitholder acquired OP Units, such OP Unitholder has the right to transfer all
or any portion of its OP Units to any person, subject to the satisfaction of
specific conditions specified in the partnership agreement, including AIMCO-GP's
right of first refusal.
It is a condition to any transfer (whether or not such transfer is effected
before or after the one year holding period) that the transferee assumes by
operation of law or express agreement all of the obligations of the transferor
Limited Partner under the partnership agreement with respect to such OP Units,
and no such transfer (other than under a statutory merger or consolidation
wherein all obligations and liabilities of the transferor Partner are assumed by
a successor corporation by operation of law) will relieve the transferor Partner
of its obligations under the partnership agreement without the approval of
AIMCO-GP, in its sole and absolute discretion.
In connection with any transfer of OP Units, AIMCO-GP will have the right
to receive an opinion of counsel reasonably satisfactory to it to the effect
that the proposed transfer may be effected without registration under the
Securities Act of 1993, and will not otherwise violate any federal or state
securities laws or regulations applicable to the AIMCO Operating Partnership or
the OP Units transferred.
No transfer by a Limited Partner of its OP Units (including any Redemption
or any acquisition of OP Units by AIMCO-GP or by the AIMCO Operating
Partnership) may be made to any person if (i) in the opinion of legal counsel
for the AIMCO Operating Partnership, it would result in the AIMCO Operating
Partnership being treated as an association taxable as a corporation, or (ii)
such transfer is effectuated through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the meaning of
the Internal Revenue Code Section 7704.
108
Substituted Limited Partners. No Limited Partner will have the right to
substitute a transferee as a Limited Partner in its place. A transferee of the
interest of a Limited Partner may be admitted as a substituted Limited Partner
only with the consent of AIMCO-GP, which consent may be given or withheld by
AIMCO-GP in its sole and absolute discretion. If AIMCO-GP, in its sole and
absolute discretion, does not consent to the admission of any permitted
transferee as a substituted Limited Partner, such transferee will be considered
an Assignee for purposes of the partnership agreement. An Assignee will be
entitled to all the rights of an assignee of a limited partnership interest
under the Delaware Act, including the right to receive distributions from the
AIMCO Operating Partnership and the share of Net Income, Net Losses and other
items of income, gain, loss, deduction and credit of the AIMCO Operating
Partnership attributable to the OP Units assigned to such transferee and the
rights to transfer the OP Units provided in the partnership agreement, but will
not be deemed to be a holder of OP Units for any other purpose under the
partnership agreement, and will not be entitled to effect a consent or vote with
respect to such OP Units on any matter presented to the Limited Partners for
approval (such right to consent or vote, to the extent provided in this
partnership agreement or under the Delaware Act, fully remaining with the
transferor Limited Partner).
Withdrawals. No Limited Partner may withdraw from the AIMCO Operating
Partnership other than as a result of a permitted transfer of all of such
Limited Partner's OP Units in accordance with the partnership agreement, with
respect to which the transferee becomes a substituted Limited Partner, or under
a Redemption (or acquisition by AIMCO) of all of such Limited Partner's
Partnership Common Units.
Restrictions on the General Partner. The General Partner may not transfer
any of its general partner interest or withdraw from the AIMCO Operating
Partnership unless (i) the limited partners consent or (ii) immediately after a
merger of AIMCO-GP into another entity, substantially all of the assets of the
surviving entity, other than the general partnership interest in the AIMCO
Operating Partnership held by AIMCO-GP, are contributed to the AIMCO Operating
Partnership as a capital contribution in exchange for OP Units.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
By the General Partner Without the Consent of the Limited Partners. The
General Partner has the power, without the consent of the Limited Partners, to
amend the partnership agreement as may be required to facilitate or implement
any of the following purposes: (1) to add to the obligations of AIMCO-GP or
surrender any right or power granted to AIMCO-GP or any affiliate of AIMCO-GP
for the benefit of the Limited Partners; (2) to reflect the admission,
substitution or withdrawal of partners or the termination of the AIMCO Operating
Partnership in accordance with the partnership agreement; (3) to reflect a
change that is of an inconsequential nature and does not adversely affect the
Limited Partners in any material respect, or to cure any ambiguity, correct or
supplement any provision in the partnership agreement not inconsistent with law
or with other provisions, or make other changes with respect to matters arising
under the partnership agreement that will not be inconsistent with law or with
the provisions of the partnership agreement; (4) to satisfy any requirements,
conditions or guidelines contained in any order, directive, opinion, ruling or
regulation of a federal or state agency or contained in federal or state law;
(5) to reflect such changes as are reasonably necessary for AIMCO to maintain
its status as a REIT; and (6) to modify the manner in which capital accounts are
computed (but only to the extent set forth in the definition of "Capital
Account" in the partnership agreement or contemplated by the Internal Revenue
Code or the Treasury Regulations).
With the Consent of the Limited Partners. Amendments to the partnership
agreement may be proposed by AIMCO-GP or by holders of a majority of the
outstanding OP Units and other classes of units which have the same voting
rights as holders of OP Units, excluding AIMCO-LP (a "Majority in Interest").
Following such proposal, AIMCO-GP will submit any proposed amendment to the
Limited Partners. The General Partner will seek the written consent of a
Majority in Interest of the Limited Partners on the proposed amendment or will
call a meeting to vote thereon and to transact any other business that AIMCO-GP
may deem appropriate.
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PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS
Meetings of the partners may be called by AIMCO-GP and will be called upon
the receipt by AIMCO-GP of a written request by a majority in interest of the
Limited Partners. Notice of any such meeting will be given to all Partners not
less than seven (7) days nor more than thirty (30) days prior to the date of
such meeting. Partners may vote in person or by proxy at such meeting. Each
meeting of partners will be conducted by AIMCO-GP or such other person as
AIMCO-GP may appoint under such rules for the conduct of the meeting as AIMCO-GP
or such other person deems appropriate in its sole and absolute discretion.
Whenever the vote or consent of partners is permitted or required under the
partnership agreement, such vote or consent may be given at a meeting of
partners or may be given by written consent. Any action required or permitted to
be taken at a meeting of the partners may be taken without a meeting if a
written consent setting forth the action so taken is signed by partners holding
a majority of outstanding OP Units (or such other percentage as is expressly
required by the partnership agreement for the action in question).
RECORDS AND ACCOUNTING; FISCAL YEAR
The partnership agreement requires AIMCO-GP to keep or cause to be kept at
the principal office of the AIMCO Operating Partnership those records and
documents required to be maintained by the Delaware Act and other books and
records deemed by AIMCO-GP to be appropriate with respect to the AIMCO Operating
Partnership's business. The books of the AIMCO Operating Partnership will be
maintained, for financial and tax reporting purposes, on an accrual basis in
accordance with generally accepted accounting principles, or on such other basis
as AIMCO-GP determines to be necessary or appropriate. To the extent permitted
by sound accounting practices and principles, the AIMCO Operating Partnership,
AIMCO-GP and AIMCO may operate with integrated or consolidated accounting
records, operations and principles. The fiscal year of the AIMCO Operating
Partnership is the calendar year.
REPORTS
As soon as practicable, but in no event later than one hundred and five
(105) days after the close of each calendar quarter and each fiscal year,
AIMCO-GP will cause to be mailed to each Limited Partner, of record as of the
last day of the calendar quarter or as of the close of the fiscal year, as the
case may be, a report containing financial statements of the AIMCO Operating
Partnership, or of AIMCO if such statements are prepared solely on a
consolidated basis with AIMCO, for such calendar quarter or fiscal year, as the
case may be, presented in accordance with generally accepted accounting
principles, and such other information as may be required by applicable law or
regulation or as AIMCO-GP determines to be appropriate. Statements included in
quarterly reports are not audited. Statements included in annual reports are
audited by a nationally recognized firm of independent public accountants
selected by AIMCO-GP.
TAX MATTERS PARTNER
The General Partner is the "tax matters partner" of the AIMCO Operating
Partnership for United States Federal income tax purposes. The tax matters
partner is authorized, but not required, to take certain actions on behalf of
the AIMCO Operating Partnership with respect to tax matters. In addition,
AIMCO-GP will arrange for the preparation and timely filing of all returns with
respect to partnership income, gains, deductions, losses and other items
required of the AIMCO Operating Partnership for United States Federal and state
income tax purposes and will use all reasonable effort to furnish, within ninety
(90) days of the close of each taxable year, the tax information reasonably
required by Limited Partners for United States Federal and state income tax
reporting purposes. The Limited Partners will promptly provide AIMCO-GP with
such information as may be reasonably requested by AIMCO-GP from time to time.
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DISSOLUTION AND WINDING UP
Dissolution. The AIMCO Operating Partnership will dissolve, and its
affairs will be wound up, upon the first to occur of any of the following (each
a "Liquidating Event"): (i) December 31, 2093; (ii) an event of withdrawal, as
defined in the Delaware Act (including, without limitation, bankruptcy), of the
sole General Partner unless, within ninety (90) days after the withdrawal, a
"majority in interest" (as such phrase is used in Section 17-801(3) of the
Delaware Act) of the remaining partners agree in writing, in their sole and
absolute discretion, to continue the business of the AIMCO Operating Partnership
and to the appointment, effective as of the date of withdrawal, of a successor
General Partner; (iii) an election to dissolve the AIMCO Operating Partnership
made by AIMCO-GP in its sole and absolute discretion, with or without the
consent of the Limited Partners; (iv) entry of a decree of judicial dissolution
of the AIMCO Operating Partnership under the provisions of the Delaware Act; (v)
the occurrence of a Terminating Capital Transaction; or (vi) the Redemption (or
acquisition by AIMCO, AIMCO-GP and/or AIMCO-LP) of all Partnership Common Units
other than Partnership Common Units held by AIMCO-GP or AIMCO-LP.
Winding Up. Upon the occurrence of a Liquidating Event, the AIMCO
Operating Partnership will continue solely for the purposes of winding up its
affairs in an orderly manner, liquidating its assets and satisfying the claims
of its creditors and partners. The General Partner (or, in the event that there
is no remaining General Partner or AIMCO-GP has dissolved, become bankrupt
within the meaning of the Delaware Act or ceased to operate, any person elected
by a majority in interest of the Limited Partners) will be responsible for
overseeing the winding up and dissolution of the AIMCO Operating Partnership and
will take full account of the AIMCO Operating Partnership's liabilities and
property, and the AIMCO Operating Partnership property will be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom (which may, to the extent determined by AIMCO-GP, include
AIMCO stock) will be applied and distributed in the following order: (i) first,
to the satisfaction of all of the AIMCO Operating Partnership's debts and
liabilities to creditors other than the partners and their Assignees (whether by
payment or the making of reasonable provision for payment thereof); (ii) second,
to the satisfaction of all the AIMCO Operating Partnership's debts and
liabilities to AIMCO-GP (whether by payment or the making of reasonable
provision for payment thereof), including, but not limited to, amounts due as
reimbursements under the partnership agreement; (ii) third, to the satisfaction
of all of the AIMCO Operating Partnership's debts and liabilities to the other
partners and any Assignees (whether by payment or the making of reasonable
provision for payment thereof); (iv) fourth, to the satisfaction of all
liquidation preferences of outstanding Preferred OP Units, if any; and (v) the
balance, if any, to AIMCO-GP, the Limited Partners and any Assignees in
accordance with and in proportion to their positive capital account balances,
after giving effect to all contributions, distributions and allocations for all
periods.
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DESCRIPTION OF CLASS A COMMON STOCK
GENERAL
As of March 31, 2002, AIMCO's charter authorized the issuance of up to
455,962,738 shares of Class A Common Stock, of which 78,981,650 shares were
issued and outstanding as of March 31, 2002. The Class A Common Stock is traded
on the NYSE under the symbol "AIV." BankBoston, N.A. serves as transfer agent
and registrar of the Class A Common Stock.
In addition, shares of Class A Common Stock have been reserved for issuance
under the Company's stock plans, as follows:
PLAN NO. OF SHARES
---- -------------
1994 Stock Option Plan of Apartment Investment and
Management Company and Affiliates.................... Up to 150,000
Apartment Investment and Management Company 1996 Stock
Award and Incentive Plan............................. Up to 500,000
Apartment Investment and Management Company's
Nonqualified Stock Option Plan....................... Up to 500,000
Apartment Investment and Management Company 1997 Stock
Award and Incentive Plan............................. Up to 20,000,000(1)
Insignia 1992 Stock Incentive Plan..................... Up to 4,666,666
1994 Stock Incentive Plan for Officers, Directors and
Key Employees of Ambassador Apartments, Inc.,
Ambassador Apartments, L.P. and Subsidiaries......... Up to 100,000
1996 Stock Incentive Plan for Officers, Directors and
Key Employees of Ambassador Apartments, Inc.,
Ambassador Apartments, L.P. and Subsidiaries......... Up to 100,000
Apartment Investment and Management Company Share
Repurchase Plan...................................... Up to 8.7% of outstanding
shares of Class A Common
Stock
---------------
(1) Under the plan, AIMCO may issue up to 10% of the shares of Class A Common
Stock outstanding as of the first day of the fiscal year during which any
award is made, but in no event more than 20,000,000 shares of Class A Common
Stock in the aggregate.
Holders of the Class A Common Stock are entitled to receive dividends, when
and as declared by the Board of Directors, out of funds legally available
therefor. The holders of shares of Class A Common Stock, upon any liquidation,
dissolution or winding up of AIMCO, are entitled to receive ratably any assets
remaining after payment in full of all liabilities of AIMCO and the liquidation
preferences of preferred stock. The shares of Class A Common Stock possess
ordinary voting rights for the election of Directors and in respect of other
corporate matters, each share entitling the holder thereof to one vote. Holders
of shares of Class A Common Stock do not have cumulative voting rights in the
election of Directors, which means that holders of more than 50% of the shares
of Class A Common Stock voting for the election of Directors can elect all of
the Directors if they choose to do so and the holders of the remaining shares
cannot elect any Directors. Holders of shares of Class A Common Stock do not
have preemptive rights, which means they have no right to acquire any additional
shares of Class A Common Stock that may be issued by AIMCO at a subsequent date.
OUTSTANDING CLASSES OF PREFERRED STOCK
As of March 31, 2002, AIMCO's charter authorized 54,624,762 shares of
preferred stock with a par value of $.01 per share. AIMCO is authorized to issue
shares of preferred stock in one or more classes or subclasses, with such
designations, preferences, conversion and other rights, voting powers,
restriction,
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limitations as to dividends, qualifications and terms and conditions of
redemption, in each case, if any as are permitted by Maryland law and as the
AIMCO Board of Directors may determine by resolution. As of March 31, 2002,
AIMCO had issued and outstanding the following classes of preferred stock:
LIQUIDATION
SHARES SHARES QUARTERLY PREFERENCE
CLASS AUTHORIZED OUTSTANDING DIVIDEND (PER SHARE)
----- ---------- ----------- --------- -----------
Class B Convertible Cumulative Preferred
Stock(1).............................. 750,000 419,471 $ 1.78125(2) $100.00
Class C Cumulative Preferred Stock...... 2,400,000 2,400,000 $ 0.5625 $ 25.00
Class D Cumulative Preferred Stock...... 4,200,000 4,200,000 $ 0.546875 $ 25.00
Class G Cumulative Preferred Stock...... 4,050,000 4,050,000 $0.5859375 $ 25.00
Class H Cumulative Preferred Stock...... 2,000,000 2,000,000 $ 0.59375 $ 25.00
Class I Cumulative Preferred Stock...... 10,000,000 0 $ 0.50(3) $ 25.00
Class J Convertible Cumulative Preferred
Stock(4).............................. 1,250,000 0 $ 2.375 $100.00
Class K Convertible Cumulative Preferred
Stock(5).............................. 5,000,000 4,340,559 $ 0.50(6) $ 25.00
Class L Convertible Cumulative Preferred
Stock(7).............................. 5,000,000 5,000,000 $ 0.50625(8) $ 25.00
Class M Convertible Cumulative Preferred
Stock(9).............................. 1,600,000 1,200,000 $ 0.53125(10) $ 25.00
Class N Convertible Cumulative Preferred
Stock(11)............................. 4,000,000 4,000,000 $ 0.5625(12) $ 25.00
Class O Convertible Cumulative Preferred
Stock(13)............................. 1,904,762 1,904,762 $ 1.18125(12) $ 52.50
Class P Convertible Cumulative Preferred
Stock(14)............................. 4,000,000 4,000,000 $ 0.5625(12)(15) $ 25.00
Class Q Cumulative Preferred Stock...... 2,530,000 2,530,000 $ 0.63125 $ 25.00
Class R Cumulative Preferred Stock...... 5,940,000 5,940,000 $ 0.625 $ 25.00
---------------
(1) Each share of Class B Convertible Cumulative Preferred Stock is convertible
into approximately 3.28407 shares of Class A Common Stock.
(2) Each share of Class B Convertible Cumulative Preferred Stock entitles the
holder to receive preferred quarterly cash distributions equal too the
greater of $1.78125 or the aggregate dividend then payable on the number of
shares of Class A Common Stock into which such share of Class B Cumulative
Preferred Stock is then convertible. If the IRS were to make a final
determination that AIMCO does not qualify as a REIT under the Code, the
quarterly cash distributions on the Class B Convertible Cumulative
Preferred Stock would increase to $3.03125 per share.
(3) Subject to adjustment on or after March 1, 2005.
(4) Each share of Class J Convertible Cumulative Preferred Stock was converted
into two shares of Class A Common Stock in 1999.
(5) Subsequent to March 31, 2002, all of the outstanding shares of Class K
Convertible Cumulative Preferred Stock were converted into 2,583,674 shares
of Class A Common Stock.
(6) Each share of Class K Convertible Cumulative Preferred Stock entitles the
holder to receive preferred quarterly cash dividends equal to (i) from
February 17, 1999 through February 17, 2002, the greater of $0.50 or the
aggregate dividend then payable on the number of shares of Class A Common
Stock into which such share of Class K Convertible Cumulative Preferred
Stock is then convertible, and (ii) from and after February 18, 2002, the
greater of $0.625 or the aggregate dividend then payable on the number of
shares of Class A Common Stock into which such share of Class K Convertible
Cumulative Preferred Stock is then convertible.
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(7) Each share of Class L Convertible Cumulative Preferred Stock is convertible
into approximately 0.5379 shares of Class A Common Stock.
(8) Each share of Class L Convertible Cumulative Preferred Stock entitles the
holder to receive preferred quarterly cash dividends equal to (i) from May
27, 1999 through May 27, 2002, the greater of $0.50625 or the aggregate
dividend then payable on the number of shares of Class A Common Stock into
which such share of Class L Cumulative Convertible Preferred Stock is then
convertible, and (ii) from and after May 28, 2002, the greater of $0.625 or
the aggregate dividend then payable on the number of shares of Class A
Common Stock into which such share of Class L Convertible Cumulative
Preferred Stock is then convertible.
(9) Each share of Class M Convertible Cumulative Preferred Stock is convertible
into approximately 0.5681818 shares of Class A Common Stock.
(10) Each share of Class M Convertible Cumulative Preferred Stock entitles the
holder to receive preferred quarterly cash dividends equal to (i) from
January 13, 2000 through January 13, 2003, the greater of $0.53125 or the
aggregate dividend then payable on the number of shares of Class A Common
Stock into which such share of Class M Convertible Cumulative Preferred
Stock is then convertible, and (ii) from and after January 13, 2003, the
greater of $0.578125 or the aggregate dividend then payable on the number
of shares of Class A Common Stock into which such share of Class M
Convertible Cumulative Preferred Stock is then convertible.
(11) Each share of Class N Convertible Cumulative Preferred Stock is convertible
into approximately 0.4762 shares of Class A Common Stock.
(12) Subject to adjustment on a change of control.
(13) Each share of Class O Convertible Cumulative Preferred Stock is convertible
into approximately one share of Class A Common Stock.
(14) Each share of Class P Convertible Cumulative Preferred Stock is convertible
into approximately 0.4464 shares of Class A Common Stock.
(15) Each share of Class P Convertible Cumulative Preferred Stock entitles the
holder to receive preferred quarterly cash dividends equal to the greater
of $0.5625 or the aggregate dividend then payable on the number of shares
of Class A Common Stock into which such share of Class P Convertible
Cumulative Stock is then convertible.
RESTRICTIONS ON TRANSFER
For AIMCO to qualify as a REIT under the Internal Revenue Code, not more
than 50% in value of its outstanding capital stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Internal Revenue
Code to include certain entities) during the last half of a taxable year and the
shares of common stock must be beneficially owned by 100 or more persons during
at least 335 days of a taxable year of 12 months or during a proportionate part
of a shorter taxable year. Because the Board of Directors believes that it is
essential for AIMCO to meet the REIT requirements, the Board of Directors has
adopted, and the stockholders have approved, provisions of AIMCO's charter
restricting the acquisition of shares of common stock.
Subject to specific exceptions specified in AIMCO's charter, no holder may
own, or be deemed to own by virtue of various attribution and constructive
ownership provisions of the Internal Revenue Code and Rule 13d-3 under the
Exchange Act, more than 8.7% (or 15% in the case of specific pension trusts
described in the Internal Revenue Code, investment companies registered under
the Investment Company Act of 1940 and Mr. Considine) of the outstanding shares
of common stock (the "Ownership Limit"). The Board of Directors may waive the
Ownership Limit if evidence satisfactory to the Board of Directors and AIMCO's
tax counsel is presented that such ownership will not then or in the future
jeopardize AIMCO's status as a REIT. However, in no event may such holder's
direct or indirect ownership of common stock exceed 9.8% of the total
outstanding shares of common stock. As a condition of such waiver, the Board of
Directors may require opinions of counsel satisfactory to it and/or an
undertaking from the applicant with respect to preserving the REIT status of
AIMCO. The foregoing restrictions on
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transferability and ownership will not apply if the Board of Directors
determines that it is no longer in the best interests of AIMCO to attempt to
qualify, or to continue to quality as a REIT and a resolution terminating
AIMCO's status as a REIT and amending AIMCO's charter to remove the foregoing
restrictions is duly adopted by the Board of Directors and a majority of AIMCO's
stockholders. If shares of common stock in excess of the Ownership Limit, or
shares of common stock which would cause the REIT to be beneficially owned by
fewer than 100 persons, or which would result in AIMCO being "closely held,"
within the meaning of Section 856(h) of the Internal Revenue Code, or which
would otherwise result in AIMCO failing to qualify as a REIT, are issued or
transferred to any person, such issuance or transfer shall be null and void to
the intended transferee, and the intended transferee would acquire no rights to
the stock. Shares of common stock transferred in excess of the Ownership Limit
or other applicable limitations will automatically be transferred to a trust for
the exclusive benefit of one or more qualifying charitable organizations to be
designated by AIMCO. Shares transferred to such trust will remain outstanding,
and the trustee of the trust will have all voting and dividend rights pertaining
to such shares. The trustee of such trust may transfer such shares to a person
whose ownership of such shares does not violate the Ownership Limit or other
applicable limitation. Upon a sale of such shares by the trustee, the interest
of the charitable beneficiary will terminate, and the sales proceeds would be
paid, first, to the original intended transferee, to the extent of the lesser of
(a) such transferee's original purchase price (or the original market value of
such shares if purportedly acquired by gift or devise) and (b) the price
received by the trustee, and, second, any remainder to the charitable
beneficiary. In addition, shares of stock held in such trust are purchasable by
AIMCO for a 90-day period at a price equal to the lesser of the price paid for
the stock by the original intended transferee (or the original market value of
such shares if purportedly acquired by gift or devise) and the market price for
the stock on the date that AIMCO determines to purchase the stock. The 90-day
period commences on the date of the violative transfer or the date that the
Board of Directors determines in good faith that a violative transfer has
occurred, whichever is later. All certificates representing shares of common
stock bear a legend referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Internal Revenue Code and Rule 13d-3 under the Exchange Act, more than a
specified percentage of the outstanding shares of common stock must file an
affidavit with AIMCO containing the information specified in AIMCO's charter
within 30 days after January 1 of each year. In addition, each stockholder shall
upon demand be required to disclose to AIMCO in writing such information with
respect to the direct, indirect and constructive ownership of shares as the
Board of Directors deems necessary to comply with the provisions of the Internal
Revenue Code applicable to a REIT or to comply with the requirements of any
taxing authority or governmental agency.
The ownership limitations may have the effect of precluding acquisition of
control of AIMCO by specific third parties unless the Board of Directors
determines that maintenance of REIT status is no longer in the best interests of
AIMCO.
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COMPARISON OF OP UNITS AND CLASS A COMMON STOCK
OP UNITS CLASS A COMMON STOCK
Nature of Investment
The OP Units constitute equity interests in the AIMCO The Class A Common Stock constitutes equity interests
Operating Partnership, a Delaware limited in AIMCO, a Maryland corporation.
partnership.
Voting Rights
Under the partnership agreement, limited partners Each outstanding share of Class A Common Stock
have voting rights only with respect to certain entitles the holder thereof to one vote on all
limited matters such as certain amendments of the matters submitted to stockholders for vote, including
partnership agreement and certain transactions such the election of directors. Holders of Class A Common
as the institution of bankruptcy proceedings, an Stock have the right to vote on, among other things,
assignment for the benefit of creditors and certain a merger of AIMCO, amendments to the AIMCO charter
transfers by AIMCO-GP of its interest in the AIMCO and the dissolution of AIMCO. Certain amendments to
Operating Partnership or the admission of a successor the AIMCO charter require the affirmative vote of not
general partner. less than two-thirds of votes entitled to be cast on
the matter. The AIMCO charter permits the AIMCO Board
of Directors to classify and issue capital stock in
one or more series having voting power which may
differ from that of the Class A Common Stock.
Under Maryland law, a consolidation, merger, share
exchange or transfer of all or substantially all of
the assets of AIMCO requires the affirmative vote of
not less than two-thirds of all of the votes entitled
to be cast on the matter. With respect to each of
these transactions, only the holders of Class A
Common Stock are entitled to vote on the matters. No
approval of the stockholders is required for the sale
of less than all or substantially all of AIMCO's
assets.
Maryland law provides that the AIMCO Board of
Directors must obtain the affirmative vote of at
least two-thirds of the votes entitled to be cast on
the matter in order to dissolve AIMCO. Only the
holders of Class A Common Stock are entitled to vote
on AIMCO's dissolution.
Distributions/Dividends
Subject to the rights of holders of any outstanding Holders of the Class A Common Stock are entitled to
Preferred OP Units, the partnership agreement receive dividends when and as declared by the AIMCO
requires AIMCO-GP to cause the AIMCO Operating Board of Directors, out of funds legally available
Partnership to distribute quarterly all, or such therefor.
portion as AIMCO-GP may in its sole and absolute Under the REIT rules, AIMCO is required to distribute
discretion determine, of Available Cash (as such term dividends (other than capital gain dividends) to its
is defined in the partnership agreement) generated by stockholders in an amount at least equal to (A) the
the AIMCO Operating sum of (i) 90% of AIMCO's
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Partnership during such quarter to AIMCO-GP, AIMCO-LP "REIT taxable income" (computed without regard to the
and the holders of OP Units on the record date dividends paid deduction and AIMCO's net capital
established by AIMCO-GP with respect to such quarter, gain) and (ii) 90% of the net income (after tax), if
in accordance with their respective interests in the any, from foreclosure property, minus (B) the sum of
AIMCO Operating Partnership on such record date. certain items of noncash income. See "United States
Holders of any Preferred OP Units currently issued Federal Income Tax Consequences -- Taxation of AIMCO
and which may be issued in the future do have and may and AIMCO Stockholders" and "-- Taxation of the AIMCO
have priority over AIMCO-GP, AIMCO-LP and holders of Operating Partnership and OP Unitholders."
OP Units with respect to distributions of Available
Cash, distributions upon liquidation or other
distributions. See "Description of OP Units --
Distributions." The General Partner in its sole and
absolute discretion may distribute to the OP
Unitholders Available Cash on a more frequent basis
and provide for an appropriate record date. The
partnership agreement requires AIMCO-GP to take such
reasonable efforts, as determined by it in its sole
and absolute discretion and consistent with the REIT
requirements, to cause the AIMCO Operating
Partnership to distribute sufficient amounts to
enable AIMCO-GP to transfer funds to AIMCO and enable
AIMCO to pay stockholder dividends that will (i)
satisfy the requirements for qualifying as a REIT
under the Internal Revenue Code, and the Treasury
Regulations and (ii) avoid any United States Federal
income or excise tax liability of AIMCO. See
"Description of OP Units -- Distributions."
Liquidity and Transferability/Redemption
There is no public market for the OP Units and the OP The Class A Common Stock is transferable subject to
Units are not listed on any securities exchange. the Ownership Limit set forth in the AIMCO charter.
Under the partnership agreement, until the expiration The Class A Common Stock is listed on the New York
of one year from the date on which a holder acquired Stock Exchange.
OP Units, subject to certain exceptions, such OP
Unitholder may not transfer all or any portion of its
OP Units to any transferee without the consent of
AIMCO-GP, which consent may be withheld in its sole
and absolute discretion. After the expiration of one
year, such OP Unitholder has the right to transfer
all or any portion of its OP Units to any person,
subject to the satisfaction of those conditions
specified in the partnership agreement, including
AIMCO-GP's right of first refusal. See "Description
of OP Units -- Transfers and Withdrawals."
After the first anniversary of becoming a holder of
OP Units, an OP Unitholder has the right, subject to
the terms and conditions of the partnership
agreement, to require the AIMCO Operating Partnership
to redeem all or a portion of the OP
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Units held by such party in exchange for shares of
Class A Common Stock or a cash amount equal to the
value of such shares, as the AIMCO Operating
Partnership may elect. See "Description of OP
Units -- Redemption Rights of Qualifying Parties."
Upon receipt of a notice of redemption, the AIMCO
Operating Partnership may, in its sole and absolute
discretion but subject to the restrictions on the
ownership of Class A Common Stock imposed under the
AIMCO charter and the transfer restrictions and other
limitations thereof, elect to cause AIMCO to acquire
some or all of the tendered OP Units in exchange for
Class A Common Stock, based on an exchange ratio of
one share of Class A Common Stock for each OP Unit,
subject to adjustment as provided in the partnership
agreement.
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COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP
The information below highlights a number of the significant differences
between your partnership and the AIMCO Operating Partnership relating to, among
other things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, and investor rights.
The section immediately following this section compares certain of the
respective legal rights associated with the ownership of units with OP Units.
These comparisons are intended to assist you in understanding how your
investment will be changed if, as a result of the offer, your units are
exchanged for OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT
DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON
OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO." For a comparison of certain legal
rights associated with an investment in the OP Units and the Class A Common
Stock, see "Comparison of OP Units and Class A Common Stock."
YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP
Form of Organization and Assets Owned
Your partnership is a limited partnership The AIMCO Operating Partnership is organized
organized under Illinois law. VMS is a as a Delaware limited partnership. The AIMCO
general partnership organized under Illinois Operating Partnership owns interests (either
law. as a Delaware limited partnership directly
or through subsidiaries) in numerous
multifamily apartment properties. The AIMCO
Operating Partnership conducts substantially
all of the operations of AIMCO, a
corporation organized under Maryland and as
a REIT.
Duration of Existence
Your partnership was presented to limited The term of the AIMCO Operating Partnership
partners as a finite life investment, with continues until December 31, 2093, unless
limited partners to receive regular cash the AIMCO Operating Partnership is dissolved
distributions out of your partnership's sooner pursuant to the terms of the AIMCO
profits and losses. The termination date of Operating Partnership's agreement of limited
your partnership is December 31, 2030. The partnership (the "AIMCO Operating
termination date of VMS is September 26, Partnership Agreement") or as provided by
2044. If VMS cannot refinance or repay its law. See "Description of OP
indebtedness at maturity in 2008, your Units -- General" and "Description of OP
partnership and VMS will be required to sell Units -- Dissolution and Winding Up."
the VMS properties and liquidate under the
VMS plan of reorganization.
Purpose and Permitted Activities
Your partnership was formed for the purpose The purpose of the AIMCO Operating
of serving as general partner of VMS. VMS Partnership is to conduct any business that
was formed for the purpose of making may be lawfully conducted by a limited
investments in various types of real partnership organized pursuant to the
properties which offer potential capital Delaware Revised Uniform Limited Partnership
appreciation and cash distributions to its Act (as amended from time to time, or any
limited partners. successor to such statute) (the "Delaware
Limited Partnership Act"), provided that
such business is to be conducted in a manner
that permits AIMCO to be qualified as a
REIT, unless AIMCO ceases to qualify as a
REIT. The AIMCO Operating Partnership is
authorized to perform any and all acts for
the furtherance of the purposes and business
of the AIMCO Operating Partnership, provided
that the AIMCO Operating Partnership may not
take, or refrain from taking, any action
which, in the judgment of its general
partner could (i) adversely affect the
ability of
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AIMCO to continue to qualify as a REIT, (ii)
subject AIMCO to certain income and excise
taxes, or (iii) violate any law or
regulation of any governmental body or
agency (unless such action, or inaction, is
specifically consented to by AIMCO). Subject
to the foregoing, the AIMCO Operating
Partnership may invest in or enter into
partnerships, joint ventures, or similar
arrangements. The AIMCO Operating
partnership currently invests, and intends
to continue to invest, in a real estate
portfolio primarily consisting of
multifamily rental apartment properties.
Additional Equity
The general partner of your partnership is The general partner is authorized to issue
authorized to issue additional limited additional partnership interests in the
partnership interests in your partnership AIMCO Operating Partnership for any
and may admit additional limited partners up partnership purpose from time to time to the
to an aggregate capital contribution of limited partners and to other persons, and
$136,800,000 by all limited partners of your To admit such other persons as additional
partnership and VMS National Residential limited partners, on terms and conditions
Portfolio I. The capital contribution need and for such capital contributions as may be
not be equal for all limited partners. established by the general partner in its
sole discretion. The net capital
contribution need not be equal for all OP
Unitholders. No action or consent by the OP
Unitholders is required in connection with
the admission of any additional OP
Unitholder. See "Description of OP Units --
Management by the AIMCO-GP." Subject to
Delaware law, any additional partnership
interests may be issued in one or more
classes, or one or more series of any of
such classes, with such designations,
preferences and relative, participating,
optional or other special rights, powers and
duties as shall be determined by the general
partner, in its sole and absolute discretion
without the approval of any OP Unitholder,
and set forth in a written document
thereafter attached to and made an exhibit
to the AIMCO Operating Partnership
Agreement.
Restrictions Upon Related Party Transactions
Except for loans made by your general The AIMCO Operating Partnership may lend or
partner or its affiliates to your contribute funds or other assets to its
partnership, your agreement of limited subsidiaries or other persons in which it
partnership does not restrict related party has an equity investment, and such persons
transactions. may borrow funds from the AIMCO Operating
Partnership, on terms and conditions
established in the sole and absolute
discretion of the general partner. To the
extent consistent with the business purpose
of the AIMCO Operating Partnership and the
permitted activities of the general partner,
the AIMCO Operating Partnership may transfer
assets to joint ventures, limited liability
companies, partnerships, corporations,
business trusts or other business entities
in which it is or thereby becomes a
participant upon such terms and subject to
such
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conditions consistent with the AIMCO
Operating Partnership Agreement and
applicable law as the general partner, in
its sole and absolute discretion, believes
to be advisable. Except as expressly
permitted by the AIMCO Operating Partnership
Agreement, neither the general partner nor
any of its affiliates may sell, transfer or
convey any property to the AIMCO Operating
Partnership, directly or indirectly, except
pursuant to transactions that are determined
by the general partner in good faith to be
fair and reasonable.
Borrowing Policies
The general partner of your partnership is The AIMCO Operating Partnership Agreement
authorized to borrow money in the ordinary contains no restrictions on borrowings, and
course of business and as security therefor the general partner has full power and
to mortgage all or any part of the VMS authority to borrow money on behalf of the
properties in addition to obtaining loans AIMCO Operating Partnership. The AIMCO
specifically provided for in your Operating Partnership has credit agreements
partnership's agreement of limited that restrict, among other things, its
partnership. ability to incur indebtedness.
Review of Investor Lists
Your partnership's agreement of limited Each OP Unitholder has the right, upon
partnership entitles the limited partners to written demand with a statement of the
have access to the current list of the names purpose of such demand and at such OP
and addresses of all limited partners at all Unitholder's own expense, to obtain a
reasonable times at the principal office of current list of the name and last known
your partnership. business, residence or mailing address of
the general partner and each other OP
Unitholder.
Management Control
Subject to the limitations set forth under All management powers over the business and
applicable law and the terms of your affairs of the AIMCO Operating Partnership
partnership's agreement of limited are vested in AIMCO-GP, Inc., which is the
partnership, the general partner of your general partner. No OP Unitholder has any
partnership has the power to do all things right to participate in or exercise control
set forth in your partnership's agreement of or management power over the business and
limited partnership. The general partner affairs of the AIMCO Operating Partnership.
represents your partnership in all The OP Unitholders have the right to vote on
transactions with third parties. No limited certain matters described under "Comparison
partner has any right or power to take part of Your Units and AIMCO OP Units -- Voting
in any way in the management of your Rights" below. The general partner may not
partnership business except as may be be removed by the OP Unitholders with or
expressly provided in your partnership's without cause. In addition to the powers
agreement of limited partnership or by granted a general partner of a limited
applicable statutes. partnership under applicable law or that are
granted to the general partner under any
other provision of the AIMCO Operating
Partnership Agreement, the general partner,
subject to the other provisions of the AIMCO
Operating Partnership Agreement, has full
power and authority to do all things deemed
necessary or desirable by it to conduct the
business of the AIMCO Operating Partnership,
to exercise all powers of the AIMCO
Operating Partnership and to effectuate the
purposes of the AIMCO Operating Partnership.
The AIMCO Operating Partnership may incur
debt or enter into other
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similar credit, guarantee, financing or
refinancing arrangements for any purpose
upon such terms as the general partner
determines to be appropriate, and may
perform such other acts and duties for and
on behalf of the AIMCO Operating Partnership
as are provided in the AIMCO Operating
Partnership Agreement. The general partner
is authorized to execute, deliver and
perform certain agreements and transactions
on behalf of the AIMCO Operating Partnership
without any further act, approval or vote of
the OP Unitholders.
Management Liability and Indemnification
Under your partnership's agreement of Notwithstanding anything to the contrary set
limited partnership, the general partner forth in the AIMCO Operating Partnership
will not incur any liability to your Agreement, the general partner is not liable
partnership or any other partner for any to the AIMCO Operating Partnership for
mistakes or errors in judgment or for any losses sustained, liabilities incurred or
act or omission believed by it in good faith benefits not derived as a result of errors
to be within the scope of authority in judgment or mistakes of fact or law of
conferred upon it by your partnership's any act or omission if the general partner
agreement of limited partnership. In acted in good faith. The AIMCO Operating
addition, your partnership will, to the Partnership Agreement provides for
extent permitted by law, indemnify the indemnification of AIMCO, or any director or
general partner against and from any officer of AIMCO (in its capacity as the
personal loss, liability (including previous general partner of the AIMCO
attorneys' fees) or damage incurred by it as Operating Partnership), the general partner,
the result of any act or omission in its any officer or director of general partner
capacity as general partner unless such or the AIMCO Operating Partnership and such
loss, liability or damage results from gross other persons as the general partner may
negligence or intentional misconduct of the designate from and against all losses,
general partner. claims, damages, liabilities, joint or
several, expenses (including legal fees),
fines, settlements and other amounts
incurred in connection with any actions
relating to the operations of the AIMCO
Operating Partnership, as set forth in the
AIMCO Operating Partnership Agreement. The
Delaware Limited Partnership Act provides
that subject to the standards and
restrictions, if any, set forth in its
partnership agreement, a limited partnership
may, and shall have the power to, indemnify
and hold harmless any partner or other
person from and against any and all claims
and demands whatsoever. It is the position
of the Securities and Exchange Commission
and certain state securities administrations
that indemnification of directors and
officers for liabilities arising under the
Securities Act is against public policy and
is unenforceable pursuant to Section 14 of
the Securities Act of 1933 and their
respective state securities laws.
Anti-Takeover Provisions
Under your partnership's agreement of Except in limited circumstances, the general
limited partnership, the limited partners partner has exclusive management power over
may remove a general partner for cause the business and affairs of the AIMCO
following written notice Operating
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to the general partner and upon a vote of Partnership. The general partner may not be
the limited partners owning 50% or more of removed as general partner of the AIMCO
the outstanding units. A limited partner may Operating Partnership by the OP Unitholders
not transfer his interests without the with or without cause. Under the AIMCO
written consent of the general partner which Operating Partnership Agreement, the general
may be withheld at the sole discretion of partner may, in its sole discretion, prevent
the general partner. a transferee of an OP Unit from becoming a
substituted limited partner pursuant to the
AIMCO Operating Partnership Agreement. The
general partner may exercise this right of
approval to deter, delay or hamper attempts
by persons to acquire a controlling interest
in the AIMCO Operating Partnership.
Additionally, the AIMCO Operating
Partnership Agreement contains restrictions
on the ability of OP Unitholders to transfer
their OP Units. See "Description of OP
Units -- Transfers and Withdrawals."
Amendment of Your Partnership Agreement
The general partner may, and, at the request With the exception of certain circumstances
of a limited partner owning at least 10% of set forth in the AIMCO Operating Partnership
the units, shall, submit any proposed Agreement, whereby the general partner may,
amendment to your partnership agreement. The without the consent of the OP Unitholders,
general partner may include its amend the AIMCO Operating Partnership
recommendation as to such proposal. Limited Agreement, amendments to the AIMCO Operating
partners owning 51% or more of the units Partnership Agreement require the consent of
must approve any proposed amendment, except the holders of a majority of the outstanding
that any amendment that causes a reduction OP Units, excluding AIMCO and certain other
in the limited partners' rights and limited exclusions (a "Majority in
interests requires the consent of limited Interest"). Amendments to the AIMCO
partners owning 100% of the units. Operating Partnership Agreement may be
proposed by the general partner or by
holders of a Majority in Interest. Following
such proposal, the general partner will
submit any proposed amendment to the OP
Unitholders. The general partner will seek
the written consent of the OP Unitholders on
the proposed amendment or will call a
meeting to vote thereon. See "Description of
OP Units -- Amendment of the AIMCO Operating
Partnership Agreement."
Compensation and Fees
In addition to the right to distributions in The general partner does not receive
respect of its partnership interest and compensation for its services as general
reimbursement for out-of-pocket expenses as partner of the AIMCO Operating Partnership.
set forth in your partnership's agreement of However, the general partner is entitled to
limited partnership, the general partner and payments, allocations and distributions in
its affiliates may receive fees for services its capacity as general partner of the AIMCO
rendered to your partnership or VMS. Operating Partnership. In addition, the
AIMCO Operating Partnership is responsible
for all expenses incurred relating to the
AIMCO Operating Partnership's ownership of
its assets and the operation of the AIMCO
Operating Partnership and reimburses the
general partner for such expenses paid by
the general partner. The employees of the
AIMCO Operating Partnership receive
compensation for their services.
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Liability of Investors
Under your partnership's agreement of Except for fraud, willful misconduct or
limited partnership, the liability of each gross negligence, no OP Unitholder has
of the limited partners for its share of the personal liability for the AIMCO Operating
losses or debts of your partnership is Partnership's debts and obligations, and
limited to the total capital contribution of liability of the OP Unitholders for the
such limited partner. AIMCO Operating Partnership's debts and
obligations is generally limited to the
amount of their investment in the AIMCO
Operating Partnership. However, the
limitations on the liability of limited
partners for the obligations of a limited
partnership have not been clearly
established in some states. If it were
determined that the AIMCO Operating
Partnership had been conducting business in
any state without compliance with the
applicable limited partnership statute, or
that the right or the exercise of the right
by the holders of OP Units as a group to
make certain amendments to the AIMCO
Operating Partnership Agreement or to take
other action pursuant to the AIMCO Operating
Partnership Agreement constituted
participation in the "control" of the AIMCO
Operating Partnership's business, then a
holder of OP Units could be held liable
under certain circumstances for the AIMCO
Operating Partnership's obligations to the
same extent as the general partner.
Fiduciary Duties
Under your partnership's agreement of Unless otherwise provided for in the
limited partnership, the general partner relevant partnership agreement, Delaware law
must act as a fiduciary with respect of the generally requires a general partner of a
assets and business of our partnership. The Delaware limited partnership to adhere to
general partner must use its best efforts to fiduciary duty standards under which it owes
do all things and perform such duties as may Its limited partners the highest duties of
be reasonably necessary to the successful good faith, fairness and loyalty and which
operation of your partnership. The general generally prohibit such general partner from
partner must devote such of its time to your taking any action or engaging in any
partnership business as may be reasonably transaction as to which it has a conflict of
necessary to carry on and conduct your interest. The AIMCO Operating Partnership
partnership's business. However, except as Agreement expressly authorizes the general
specifically provided in your partnership, partner to enter into, on behalf of the
the partners may engage in whatever AIMCO Operating Partnership, a right of
activities they choose, whether the same be first opportunity arrangement and other
competitive with your partnership or conflict avoidance agreements with various
otherwise, including without limitation, the affiliates of the AIMCO Operating
acquisition, ownership, financing, Partnership and the general partner, on such
syndication, development, improvement, terms as the general partner, in its sole
leasing, operation, management and brokerage and absolute discretion, believes are
of real property. advisable. The AIMCO Operating Partnership
Agreement expressly limits the liability of
In general, your partnership's agreement of the general partner by providing that the
limited partnership and the AIMCO Operating general partner, and its officers and
Partnership Agreement have limitations on directors will not be liable or accountable
general partner but such limitations differ in damages to the AIMCO Operating
and provide more protection for the general Partnership, the limited partners or
partner of the AIMCO Operating Partnership. assignees for errors in judgment or mistakes
of fact or law or of any act or omission if
the general partner or such director or
officer acted in good faith. See
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"Description of OP Units -- Fiduciary
Responsibilities."
Federal Income Taxation
In general, there are no material The AIMCO Operating Partnership is not
differences between the taxation of your subject to Federal income taxes. Instead,
partnership and the AIMCO Operating each holder of OP Units includes in income
Partnership. Its allocable share of the AIMCO Operating
Partnership's taxable income or loss when it
determines its individual Federal income tax
liability. Income and loss from the AIMCO
Operating Partnership may be subject to the
passive activity limitations. If an
investment in an OP Unit is treated as a
passive activity, income and loss from the
AIMCO Operating Partnership generally can be
offset against income and loss from other
investments that constitute "passive
activities' (unless the AIMCO Operating
Partnership is considered a "publicity
traded partnership", in which case income
and loss from the AIMCO Operating
Partnership can only be offset against other
income and loss from the AIMCO Operating
Partnership). Income of the AIMCO Operating
Partnership, however, attributable to
dividends from the Management Subsidiaries
(as defined below) or interest paid by the
Management Subsidiaries does not qualify as
passive activity income and cannot be offset
against losses from "passive activities."
Cash distributions by the AIMCO Operating
Partnership are not taxable to a holder of
OP Units except to the extent they exceed
such Partner's basis in its interest in the
AIMCO Operating Partnership (which will
include such OP Unitholder's allocable share
of the AIMCO Operating Partnership's
nonrecourse debt). Each year, OP Unitholders
receive a Schedule K-1 tax form containing
tax information for inclusion in preparing
their Federal income tax returns. OP
Unitholders are required, in some cases, to
file state income tax returns and/or pay
state income taxes in the states in which
the AIMCO Operating Partnership owns
property or transacts business, even if they
are not residents of those states. The AIMCO
Operating Partnership may be required to pay
state income taxes in certain states.
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COMPARISON OF YOUR UNITS AND AIMCO OP UNITS
YOUR UNITS OP UNITS
Nature of Investment
The partnership interests in your partnership The OP Units constitute equity interests entitling
constitute equity interests entitling each partner to each OP Unitholder to such partner's pro rata share
its pro rata share of distributions to be made to the of cash distributions made from Available Cash (as
partners of your partnership. such term is defined in the AIMCO Operating
Partnership Agreement) to the partners of the AIMCO
Operating Partnership. To the extent the AIMCO
Operating Partnership sells or refinances its assets,
the net proceeds therefrom generally will be retained
by the AIMCO Operating Partnership for working
capital and new investments rather than being
distributed to the OP Unitholders (including AIMCO).
Voting Rights
Under your partnership's agreement of limited Under the AIMCO Operating Partnership Agreement, the
partnership, upon the vote of the limited partners OP Unitholders have voting rights only with respect
owning more than 50% of the outstanding units, the to certain limited matters such as certain amendments
limited partners may amend your partnership's and termination of the AIMCO Operating Partnership
agreement of limited partnership. A general partner Agreement and certain transactions such as the
may cause the dissolution of your partnership by institution of bankruptcy proceedings, an assignment
retiring. In such event, the limited partners holding for the benefit of creditors and certain transfers by
more than 50% of the outstanding units may, within the general partner of its interest in the AIMCO
sixty days of such occurrence, vote to continue the Operating Partnership or the admission of a successor
business of your partnership. If no general partner general partner. Under the AIMCO Operating
remains in office, all of the limited partners may Partnership Agreement, the general partner has the
elect to reform your partnership and elect a power to effect the acquisition, sale, transfer,
successor general partner whereupon your partnership exchange or other disposition of any assets of the
will be dissolved and all of the assets and AIMCO Operating Partnership (including, but not
liabilities of your partnership will be contributed limited to, the exercise or grant of any conversion,
to a new partnership and all parties to your option, privilege or subscription right or any other
partnership's agreement of limited partnership will right available in connection with any assets at any
become parties to such new partnership. time held by the AIMCO Operating Partnership) or the
merger, consolidation, reorganization or other
In general, you have greater voting rights in your combination of the AIMCO Operating Partnership with
partnership than you will have as an OP Unitholder. or into another entity, all without the consent of
OP Unitholders cannot remove the general partner of the OP Unitholders. The general partner may cause the
the AIMCO Operating Partnership. dissolution of the AIMCO Operating Partnership by an
"event of withdrawal, "as defined in the Delaware
Limited Partnership Act (including, without
limitation, bankruptcy), unless, within 90 days after
the withdrawal, holders of a "majority in interest,"
as defined in the Delaware Limited Partnership Act,
agree in writing, in their sole and absolute
discretion, to continue the business of the AIMCO
Operating Partnership and to the appointment of a
successor general partner. The general partner may
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elect to dissolve the AIMCO Operating Partnership in
its sole and absolute discretion, with or without the
consent of the OP Unitholders. See "Description of OP
Units -- Dissolution and Winding Up." OP Unitholders
cannot remove the general partner of the AIMCO
Operating Partnership with or without cause.
Distributions
Your partnership's agreement of limited partnership Subject to the rights of holders of any outstanding
specifies how the cash available for distribution, Preferred OP Units, the AIMCO Operating Partnership
whether arising from operations or sales or Agreement requires the general partner to cause the
refinancing, is to be shared among the partners. AIMCO Operating Partnership to distribute quarterly
Distributions will be made quarterly. The all, or such portion as the general partner may in
distributions payable to the partners are not fixed its sole and absolute discretion determine, of
in amount and depend upon the operating results and Available Cash (as defined in the AIMCO Operating
net sales or refinancing proceeds available from the Partnership Agreement) generated by the AIMCO
disposition of your partnership's assets. Your Operating Partnership during such quarter to the
partnership has not made distributions in the past general partner, AIMCO-LP and the holders of OP Units
and is not projected to make distributions in 2002. on the record date established by the general partner
All of the cash flow from your partnership is with respect to such quarter, in accordance with
currently dedicated to the payment of operating their respective interests in the AIMCO Operating
expenses, capital expenditures and debt service Partnership on such record date. Holders of any other
Preferred OP Units issued in the future may have
priority over the general partner, AIMCO-LP and
holders of OP Units with respect to distributions of
Available Cash, distributions upon liquidation or
other distributions. The general partner in its sole
and absolute discretion may distribute to the OP
Unitholders Available Cash on a more frequent basis
and provide for an appropriate record date. The AIMCO
Operating Partnership Agreement requires the general
partner to take such reasonable efforts, as
determined by it in its sole and absolute discretion
and consistent with AIMCO's qualification as a REIT,
to cause the AIMCO Operating Partnership to
distribute sufficient amounts to enable the general
partner to transfer funds to AIMCO and enable AIMCO
to pay stockholder dividends that will (i) satisfy
the requirements for qualifying as a REIT under the
Code and the Treasury Regulations and (ii) avoid any
Federal income or excise tax liability of AIMCO. See
"Description of OP Units -- Distributions."
Liquidity and Transferability/Redemption Rights
A limited partner may transfer his units to any There is no public market for the OP Units. The AIMCO
person and such person will become a substitute Operating Partnership Agreement restricts the
limited partner if: (1) a written assignment has been transferability of the OP Units. Until the expiration
duly executed and acknowledged by the of one year from the date on which an
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assignor and assignee and delivered to the general OP Unitholder acquired OP Units, subject to certain
partner, (2) the approval of the general partner exceptions, such OP Unitholder may not transfer all
which may be withheld in the sole discretion and or any portion of its OP Units to any transferee
which will be withheld if the transfer would result without the consent of the general partner, which
in the termination of your partnership for tax consent may be withheld in its sole and absolute
purposes, (3) the assignee has agreed to bound by all discretion. After the expiration of one year, such OP
of the terms of your partnership's agreement of Unitholder has the Right to transfer all or any
limited partnership and absolute discretion of the portion of its OP Units to any person, subject to the
general partner has been granted, (4) the assignee satisfaction of certain conditions specified in the
represents he is a citizen and resident of the U.S. AIMCO Operating Partnership Agreement, including the
and that he is not acquiring the interest with a view general partner's right of first refusal. See
to resell the interest, and (5) the assignor and "Description of OP Units -- Transfers and
assignee have complied with such other conditions as Withdrawals." After the first anniversary of becoming
set forth in your partnership's agreement of limited a holder of OP Units, an OP Unitholder has the right,
partnership. There are no redemption rights subject to the terms and conditions of the AIMCO
associated with your units. Operating Partnership Agreement, to require the AIMCO
Operating Partnership to redeem all or a portion of
the OP Units held by such party in exchange for a
cash amount based on the value of shares of Class A
Common Stock. See "Description of OP
Units -- Redemption Rights." Upon receipt of a notice
of redemption, the AIMCO Operating Partnership may,
in its sole and absolute discretion but subject to
the restrictions on the ownership of Class A Common
Stock imposed under AIMCO's charter and the transfer
restrictions and other limitations thereof, elect to
cause AIMCO to acquire some or all of the tendered OP
Units in exchange for Class A Common Stock, based on
an exchange ratio of one share of Class A Common
Stock for each OP Unit, subject to adjustment as
provided in the AIMCO Operating Partnership
Agreement.
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CONFLICTS OF INTEREST AND TRANSACTIONS WITH AFFILIATES
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER
The general partner of your partnership is a subsidiary of AIMCO.
Accordingly, the general partner of your partnership has substantial conflicts
of interest with respect to the offer. The general partner of your partnership
has a fiduciary obligation to obtain a fair offer price for you, even as a
subsidiary of AIMCO. It also has a duty to remove the property manager for your
partnership's property, under certain circumstances, even though the property
manager is also an affiliate of AIMCO. The conflicts of interest include the
fact that a decision to remove, for any reason, the general partner of your
partnership from its current position as a general partner of your partnership
would result in a decrease or elimination of the substantial management fees
paid to an affiliate of the general partner of your partnership for managing
your partnership property. Additionally, we desire to purchase units at a low
price and you desire to sell units at a high price. The general partner of your
partnership makes no recommendation as to whether you should tender or refrain
from tendering your units. Such conflicts of interest in connection with the
offer and the operation of AIMCO differ from those conflicts of interest that
currently exist for your partnership. See "Risk Factors -- Risks to Unitholders
Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the
Offer."
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP
We own both the general partner of your partnership and the manager of the
VMS properties. Your partnership agreement provides that the general partner and
its affiliates receive fees for services rendered to your partnership or VMS. In
addition, the general partner and its affiliates are reimbursed by your
partnership for out-of-pocket expenses incurred on behalf of your partnership or
VMS. The general partner and its affiliates received an average of $892,333 in
fees and reimbursements for each year during the three-year period ended
December 31, 2001, and the property manager received an average of $1,247,333 in
management fees for each year during the same period. The AIMCO Operating
Partnership has no current intention of changing the fee structure for your
partnership.
COMPETITION AMONG PROPERTIES
Because AIMCO and your partnership both invest in apartment properties,
these properties may compete with one another for tenants. AIMCO's policy is to
limit its management to properties which do not compete with one another.
Furthermore, you should bear in mind that AIMCO anticipates acquiring properties
in general market areas where the VMS properties are located. It is believed
that this concentration of properties in a general market area will facilitate
overall operations through collective advertising efforts and other operational
efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership
will attempt to reduce such conflicts between competing properties by referring
prospective customers to the property considered to be most conveniently located
for the customer's needs.
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain provisions of AIMCO's governing documents, as well as statutory
provisions under certain state laws, could be used by AIMCO's management to
delay, discourage or thwart efforts of third parties to acquire control of, or a
significant equity interest in, AIMCO and the AIMCO Operating Partnership. See
"Comparison of Your Partnership and the AIMCO Operating Partnership." AIMCO's
charter limits ownership of its common stock by any single stockholder to 8.7%
of the outstanding shares (or 15% in the case of certain pension trusts,
registered investment companies and AIMCO's Chairman, Terry Considine). The 8.7%
ownership limit may have the effect of precluding acquisition of control of us
by a third party without the consent of our board of directors. Under AIMCO's
charter, the board of directors has the authority to classify and reclassify any
of its unissued shares of capital stock into shares of preferred stock with such
preferences, rights, powers and restrictions as the board of directors may
determine. The authorization and issuance of preferred stock could have the
effect of delaying or preventing someone from taking control of us, even if a
change in control were in our stockholders' best
129
interests. As a Maryland corporation, AIMCO is subject to various Maryland laws
which may have the effect of discouraging offers to acquire us and of increasing
the difficulty of consummating any such offers, even if our acquisition would be
in our stockholders' best interests. The Maryland General Corporation Law
restricts mergers and other business combination transactions between us and any
person who acquires beneficial ownership of shares of our stock representing 10%
or more of the voting power without our board of directors' prior approval. Any
such business combination transaction could not be completed until five years
after the person acquired such voting power, and only with the approval of
stockholders representing 80% of all votes entitled to be cast and 66% of the
votes entitled to be cast, excluding the interested stockholder, or upon payment
of a fair price. Maryland law also provides that a person who acquires shares of
our stock that represent 10% or more of the voting power in electing directors
will have no voting rights unless approved by a vote of two-thirds of the shares
eligible to vote. In addition, Maryland law may make it more difficult for
someone to acquire us, such as a board of directors' ability to adopt
stockholders' rights plans and power to fix the record date, time and place for
special meetings of the stockholders.
TRANSACTIONS WITH AFFILIATES
We purchased (i) the junior debt of your partnership (the "Junior Debt") on
November 19, 1999, (ii) a significant interest in the residual value of the
properties on November 16, 1999, (iii) economic and voting rights in a 0.61%
interest in Partners Liquidating Trust ("PLT"), which effectively owns a
significant interest in the residual value of the properties, in September 2000,
(iv) a 1.1% interest in PLT in March 2001, and (v) a 72.34% interest in the VMS
bankruptcy claim owned by the PLT in March 2001. In connection with our purchase
of the Junior Debt, (i) the seller, which owned the senior loans on the
properties until October 1998, acknowledged its prior consent to $1,749,286 of
capital expenditures made on the properties in addition to those funded pursuant
to the capital expenditure reserves for the senior and junior loans, which
capital expenditures were funded out of cash flow that would otherwise have been
used to pay debt service on the Junior Debt, and (ii) certain deadlines as to
the timelines and completion of certain scheduled deferred maintenance items
were waived. In addition, we, VMS, and the servicer of the senior loans
encumbering the properties (the "Servicer") agreed to a methodology to reach
agreement as to whether or not additional capital expenditures, in addition, to
permitted capital expenditures of $300 per unit per year, are needed at each
property and the methodology from funding any such capital expenditures. Capital
expenditures identified pursuant to these procedures are funded out of operating
cash flow from the properties that otherwise would be used to service the Junior
Debt on the properties; longer term capital expenditures so identified are
funded through an increase in required capital expenditure reserve funding. On
November 19, 1999, an agreement was executed relating to the required capital
expenditures at Towers of Westchester Park. On July 10, 2000, similar agreements
were executed relating to North Park Apartments, Scotchollow, Pathfinder, Buena
Vista Apartments, Mountain View Apartments, Casa de Monterey and The Bluffs. In
August 2000, similar agreements were executed relating to Shadowood Apartments,
Crosswood Park Apartments, Vista Village Apartments, Watergate Apartments,
Chapelle Le Grande Apartments, and Forest Ridge Apartments and on September 19,
2000, a similar agreement was executed relating to Terrace Gardens Apartments.
These agreements and their economic impact on VMS are more fully discussed in
VMS' Annual Report on Form 10-K for the period ended December 31, 2001.
It is anticipated that such funding will significantly increase the period
of time that it takes to amortize the Junior Debt, may cause the Junior Debt to
negatively amortize for some period of time, and may result in or increase the
amount of balloon payments due on the Junior Debt at the end of the term. If the
properties cannot be refinanced or sold at or before the end of such term for a
sufficient amount VMS will risk losing such properties through foreclosure.
There can be no assurance of the effect that such additional capital
expenditures, and the funding therefor, will have on the operations of the
properties, or whether the properties will be maintained in the future in an
acceptable or marketable state of repair.
130
FUTURE EXCHANGE OFFERS
If the results of operations were to improve for your partnership under
AIMCO's management, AIMCO might pay a higher price for any future exchange
offers it may make for units of your partnership. Although we have no current
plans to conduct future exchange offers for your units, our plans may change
based on future circumstances. Any such future offers that we might make could
be for consideration that is more or less than the consideration we are
currently offering.
SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES
The AIMCO Operating Partnership expects that approximately $477,773 plus
expenses will be required to purchase all of the units sought in the offer, if
such units are tendered for cash. The AIMCO Operating Partnership may from time
to time commence offers to acquire interests in other limited partnerships prior
to the expiration of this offer. We believe that we will have sufficient cash on
hand and available sources of financing to acquire all units tendered pursuant
to this offer and any other offers that we may commence and complete during the
offering period for this offer. As of March 31, 2002, we had $107 million of
cash on hand and $170 million available for borrowing under existing lines of
credit. We intend to repay any amounts borrowed to finance the offer out of
future working capital.
We have a secured $400 million revolving credit facility with Bank of
America, Fleet National Bank and First Union National Bank with a syndicate
comprised of a total of ten lender participants. Our revolving credit facility
was amended and restated on March 11, 2002. The obligations under the amended
and restated credit facility are secured by a first priority pledge of certain
non-real estate assets of the Company and a second priority pledge of the equity
ownership of the Company and certain subsidiaries of AIMCO. Borrowings under the
amended and restated credit facility are available for general corporate
purposes. The amended and restated credit facility matures in July 2004 and can
be extended once at AIMCO's option, for a term of one year. The annual interest
rate under the credit facility is based either on LIBOR or a base rate which is
the higher of Bank of America, N.A.'s reference rate of 0.5% over the federal
funds rate, plus, in either case, an applicable margin.
The AIMCO Operating Partnership will pay all of the costs of the offer and
not your partnership. Below is an itemized statement of the estimated expenses
incurred and to be incurred in the offer by the AIMCO Operating Partnership:
SEC Registration Fee........................................ $ 33
Information Agent Fees...................................... $ 2,500
Accountant's Fees........................................... $ 50,000
Legal Fees.................................................. $ 50,000
Printing Fees............................................... $ 3,500
Other....................................................... $ 10,000
--------
Total....................................................... $116,033
========
WHERE YOU CAN FIND MORE INFORMATION
AIMCO, the AIMCO Operating Partnership and VMS are subject to the
informational requirements of the Securities Exchange Act of 1934, a amended,
and, in accordance therewith, file reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). You may
read and copy any document so filed at the SEC's public reference rooms in
Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our filings are also available to the public at
the SEC's web site at http://www.sec.gov.
We are incorporating by reference the information that AIMCO, the AIMCO
Operating Partnership and VMS file with the SEC, which means that we are
disclosing important information to you by referring
131
you to those documents. The information incorporated by reference is considered
to be part of this prospectus. We incorporate by reference the documents listed
below and any future filings made by AIMCO, the AIMCO Operating Partnership and
VMS with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until the offering of the securities hereby is completed.
- Apartment Investment and Management Company's Proxy Statement for Annual
Meeting of Stockholders, filed April 1, 2002;
- Apartment Investment and Management Company's Annual Report on Form 10-K
for the year ended December 31, 2001;
- Apartment Investment and Management Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 2002;
- Apartment Investment and Management Company's Current Reports on Form
8-K, filed February 25, 2002, March 13, 2002, March 20, 2002, March 26,
2002, April 16, 2002, May 2, 2002 (as amended on May 3, 2002) and June 6,
2002;
- The description of Apartment Investment and Management Company's capital
stock contained in its Registration Statement on Form 8-A (File No.
1-13232) filed July 19, 1994, including any amendment or reports filed
for the purpose of updating this description;
- AIMCO Properties, L.P.'s Annual Report on Form 10-K for the year ended
December 31, 2001;
- AIMCO Properties L.P.'s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002;
- AIMCO Properties, L.P.'s Current Report on Form 8-K, filed on March 13,
2002;
- AIMCO Properties, L.P.'s Registration Statement on Form 10 (File No.
0-24497) filed September 4, 1998, including any amendment or reports
filed for the purpose of updating this Registration Statement;
- VMS National Properties Joint Venture's Annual Report on Form 10-K for
the year ended December 31, 2001; and
- VMS National Properties Joint Venture's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2002.
You may request a copy of these filings, at no cost, by writing or calling
us at the following address and telephone number:
Corporate Secretary
Apartment Investment and Management Company
Colorado Center, Tower Two
2000 South Colorado Boulevard
Suite 2-1000
Denver, Colorado 80222
(303) 757-8101
You should rely only on the information included or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of the
document.
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP has delivered an opinion to the
effect that the OP Units offered by this prospectus will be validly issued,
fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP has
delivered an opinion with regard to the material Federal income tax consequences
of the offer. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed
certain legal services on behalf of AIMCO and the AIMCO Operating Partnership
and their affiliates.
132
The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not
attached to this prospectus. However, upon receipt of a written request by a
unitholder or representative so designated in writing, a copy of such opinions
will be sent by the Information Agent.
The validity of the Class A common stock issuable upon redemption of the OP
Units will be passed upon by Piper Rudnick LLP, Baltimore, Maryland.
EXPERTS
Ernst & Young LLP, independent auditors, have audited (i) AIMCO's
consolidated financial statements and schedule included in AIMCO's Annual Report
on Form 10-K for the year ended December 31, 2001, and (ii) AIMCO Properties,
L.P.'s consolidated financial statements and schedule included in AIMCO
Properties, L.P.'s Annual Report on Form 10-K for the year ended December 31,
2001, as set forth in their reports, which are incorporated by reference in this
prospectus and elsewhere in the registration statement. These financial
statements and schedules are incorporated by reference in reliance on Ernst &
Young LLP's reports, given on their authority as experts in accounting and
auditing.
Ernst & Young LLP, independent auditors, have audited VMS's combined
financial statements included in VMS National Properties Joint Venture's Annual
Report on Form 10-K for the year ended December 31, 2001, as set forth in their
report, which is incorporated by reference in this prospectus and elsewhere in
the registration statement. These financial statements are incorporated by
reference in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
133
ANNEX A
OFFICERS AND DIRECTORS
The names and positions of the executive officers of Apartment Investment
and Management Company ("AIMCO"); AIMCO-GP, Inc. ("AIMCO-GP") and the general
partner of your partnership are set forth below. The directors of AIMCO are also
set forth below. The two directors of AIMCO-GP are Terry Considine and Peter
Kompaniez. The two directors of the general partner of your partnership are
Peter K. Kompaniez and Patrick J. Foye. The two officers of your partnership are
Patrick J. Foye and Martha L. Long. Unless otherwise indicated, the business
address of each executive officer and director is 2000 South Colorado Boulevard,
Suite 2-1000, Denver, Colorado 80222-7900. Each executive officer and director
is a citizen of the United States of America.
NAME POSITION
---- --------
Chairman of the Board of Directors and Chief Executive
Terry Considine........................... Officer
Peter K. Kompaniez........................ Vice Chairman, President and Director
Harry G. Alcock........................... Executive Vice President and Chief Investment Officer
Miles Cortez.............................. Executive Vice President, General Counsel and Secretary
Joseph DeTuno............................. Executive Vice President -- Redevelopment
Patrick J. Foye........................... Executive Vice President
Lance J. Graber........................... Executive Vice President -- Acquisitions
Paul J. McAuliffe......................... Executive Vice President and Chief Financial Officer
Ronald D. Monson.......................... Executive Vice President and Head of Property Operations
David Robertson........................... Executive Vice President -- Affordable Properties
James N. Bailey........................... Director
Richard S. Ellwood........................ Director
J. Landis Martin.......................... Director
Thomas L. Rhodes.......................... Director
Martha L. Long............................ Senior Vice President and Controller of MAERIL, Inc.
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
Terry Considine........................... Mr. Considine has been Chairman and Chief Executive Officer
of AIMCO and AIMCO-GP since July 1994. Mr. Considine serves
as Chairman of the Board of Directors of American Land
Lease, Inc. (formerly Asset Investors Corporation and
Commercial Asset Investors, Inc.), another public real
estate investment trust. Mr. Considine has been and remains
involved as a principal in a variety of other business
activities.
Peter K. Kompaniez........................ Mr. Kompaniez has been Vice Chairman and a director of AIMCO
since July 1994 and was appointed President in July 1997.
Mr. Kompaniez has also served as Chief Operating Officer of
NHP Incorporated, which was acquired by AIMCO in December
1997. From 1986 to 1993, he served as President and Chief
Executive Officer of Heron Financial Corporation ("HFC"), a
United States holding company for Heron International,
N.V.'s real estate and related assets. While at HFC, Mr.
Kompaniez administered the acquisition, development and
disposition of approximately 8,150 apartment units
(including 6,217 units that have been acquired by the AIMCO)
and 3.1 million square feet of commercial real estate.
A-1
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
Harry G. Alcock........................... Mr. Alcock served as a Vice President of AIMCO from July
1996 to October 1997, when he was promoted to Senior Vice
President -- Acquisitions. Mr. Alcock served as Senior Vice
President -- Acquisitions until October 1999, when he was
promoted to Executive Vice President and Chief Investment
Officer. Mr. Alcock has held responsibility for AIMCO's
acquisition and financing activities since July 1994. From
June 1992 until July 1994, Mr. Alcock served as Senior
Financial Analyst for PDI and HFC. From 1988 to 1992, Mr.
Alcock worked for Larwin Development Corp., a Los
Angeles-based real estate developer, with responsibility for
raising debt and joint venture equity to fund land
acquisition and development. From 1987 to 1988, Mr. Alcock
worked for Ford Aerospace Corp. He received his B.S. from
San Jose State University.
Miles Cortez.............................. Mr. Cortez was appointed Executive Vice President, General
Counsel and Secretary in August 2001. Since December 1997,
Mr. Cortez has been a founding partner and the senior
partner of the law firm of Cortez Macaulay Bernhardt &
Schuetze LLC. From August 1993 to November 1997, Mr. Cortez
was a partner in the law firm of McKenna & Cuneo, LLP. Mr.
Cortez was the President of the Denver Bar Association from
1982-1983; was Chairman of the Ethics Committee of the
Colorado Bar Association from 1977-1978, was President of
the Colorado Bar Association from 1996-1997, and was a
member of the American Bar Association House of Delegates
from 1990-1995. Mr. Cortez is a Life Fellow of the Colorado
Bar Foundation and American Bar Foundation. Mr. Cortez has
been listed in the national publication "The Best Lawyers in
America" for business litigation for the past ten years.
Joseph DeTuno............................. Mr. DeTuno was appointed Executive Vice President --
Redevelopment of AIMCO in February 2001. Mr. DeTuno has been
Senior Vice President -- Property Redevelopment of AIMCO
since August 1997. Mr. DeTuno was previously President and
founder of JD Associates, his own full service real estate
consulting, advisory and project management company that he
founded in 1990.
Patrick J. Foye........................... Mr. Foye was appointed Executive Vice President of AIMCO in
May 1998. He is responsible for acquisitions of partnership
securities, consolidation of minority interests, and
corporate and other acquisitions. Prior to joining AIMCO,
Mr. Foye was a merger and acquisitions partner in the law
firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989
to 1998 and was Managing Partner of the firm's Brussels,
Budapest and Moscow offices from 1992 through 1994. Mr. Foye
is also Deputy Chairman of the Long Island Power Authority
and serves as a member of the New York State Privatization
Council. He received a B.A. from Fordham College and a J.D.
from Fordham University Law School and was Associate Editor
of the Fordham Law Review.
A-2
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
Lance Graber.............................. Mr. Graber was appointed Executive Vice President --
Acquisitions in October 1999. His principal business
function is acquisitions. Prior to joining AIMCO, Mr. Graber
was an Associate from 1991 through 1992 and then a Vice
President from 1992 through 1994 at Credit Suisse First
Boston engaged in real estate financial advisory services
and principal investing. He was a Director there from 1994
to May 1999, during which time he supervised a staff of
seven in the making of principal investments in hotel,
multi-family and assisted living properties. Mr. Graber
received a B.S. and an M.B.A. from the Wharton School of the
University of Pennsylvania.
Paul J. McAuliffe......................... Mr. McAuliffe has been Executive Vice President of AIMCO
since February 1999 and was appointed Chief Financial
Officer in October 1999. Prior to joining AIMCO, Mr.
McAuliffe was Senior Managing Director of Secured Capital
Corporation and prior to that time had been a Managing
Director of Smith Barney, Inc. from 1993 to 1996, where he
was a key member of the underwriting team that led AIMCO's
initial public offering in 1994. Mr. McAuliffe was also a
Managing Director and head of the real estate group at CS
First Boston from 1990 to 1993 and he was a Principal in the
real estate group at Morgan Stanley & Co., Inc. from 1983 to
1990. Mr. McAuliffe received a B.A. from Columbia College
and an MBA from University of Virginia, Darden School.
Ronald D. Monson.......................... Mr. Monson was appointed Executive Vice President and Head
of Property Operations of AIMCO on February 6, 2001. Mr.
Monson has been with AIMCO since 1997 and was promoted to
Divisional Vice President in 1998. Prior to joining AIMCO,
Mr. Monson worked for 13 years in operations management
positions in the lawn care and landscaping industries,
principally with True Green/Chemlawn. Mr. Monson received a
Bachelor of Science from the University of Minnesota and a
Masters in Business Administration from Georgia State
University.
David Robertson........................... Mr. Robertson was appointed Executive Vice President --
Affordable Properties in February 2002. He is responsible
for affordable property operations, refinancing and other
value creation within AIMCO's affordable portfolio. Prior to
joining AIMCO, Mr. Robertson was a member of the investment-
banking group at Smith Barney from 1991 to 1996, where he
was responsible for real estate investment banking
transactions in the western United States, and was part of
the Smith Barney team that managed AIMCO's initial public
offering in 1994. Since February 1996, Mr. Robertson has
been Chairman and Chief Executive Officer of Robeks
Corporation, a privately held chain of specialty food
stores.
James N. Bailey........................... Mr. Bailey was appointed a Director of AIMCO in June 2000.
Cambridge Associates, Inc. In 1973, Mr. Bailey co-founded Cambridge Associates, Inc.,
1 Winthrop Square, which is an investment consulting firm for non-profit
Suite 500 institutions and wealthy family groups. He is also
Boston, MA 02110 Co-Founder, Treasurer and Director of The Plymouth Rock
Company, Direct Response Corporation and Homeowners' Direct
Corporation, each of which is a United States personal lines
insurance company. He received his M.B.A. and J.D. degrees
in 1973 from Harvard Business School and Harvard Law School.
A-3
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
Richard S. Ellwood........................ Mr. Ellwood was appointed a Director of AIMCO in July 1994
12 Auldwood Lane and is currently Chairman of the Audit Committee and a
Rumson, NJ 07660 member of the Compensation Committee. Mr. Ellwood is the
founder and President of R.S. Ellwood & Co., Incorporated, a
real estate investment banking firm. Prior to forming R.S.
Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31
years experience on Wall Street as an investment banker,
serving as: Managing Director and senior banker at Merrill
Lynch Capital Markets from 1984 to 1987; Managing Director
at Warburg Paribas Becker from 1978 to 1984; general partner
and then Senior Vice President and a director at White, Weld
& Co. from 1968 to 1978; and in various capacities at J.P.
Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves
as a director of Felcor Lodging Trust, Incorporated and
Florida East Coast Industries, Inc.
J. Landis Martin.......................... Mr. Martin was appointed a director of AIMCO in July 1994
199 Broadway and became Chairman of the Compensation Committee on March
Suite 4300 19, 1998. Mr. Martin is a member of the Audit Committee. Mr.
Denver, CO 80202 Martin has served as President and Chief Executive Officer
of NL Industries, Inc., a manufacturer of titanium dioxide,
since 1987. Mr. Martin has served as Chairman of Tremont
Corporation ("Tremont"), a holding company operating though
its affiliates Titanium Metals Corporation ("TIMET") and NL
Industries, Inc. ("NL"), since 1990 and as Chief Executive
Officer and a director of Tremont since 1988. Mr. Martin has
served as Chairman of TIMET, an integrated producer of
titanium, since 1987 and Chief Executive Officer since
January 1995. From 1990 until its acquisition by a
predecessor of Halliburton Company ("Halliburton") in 1994,
Mr. Martin served as Chairman of the Board and Chief
Executive Officer of Baroid Corporation, an oilfield
services company. In addition to Tremont, NL and TIMET, Mr.
Martin is a director of Halliburton, which is engaged in the
petroleum services, hydrocarbon and engineering industries,
and Crown Castle International Corporation, a communications
company.
A-4
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
Thomas L. Rhodes.......................... Mr. Rhodes was appointed a Director of AIMCO in July 1994
215 Lexington Avenue and is a member of the Audit and Compensation Committees.
4th Floor Mr. Rhodes has served as the President and a Director of
New York, NY 10016 National Review magazine since November 1992, where he has
also served as a Director since 1998. From 1976 to 1992, he
held various positions at Goldman, Sachs & Co. and was
elected a General Partner in 1986 and served as a General
Partner from 1987 until November 1992. He is currently
Co-Chairman of the Board, Co-Chief Executive Officer and a
Director of American Land Lease, Inc. He also serves as a
Director of Delphi Financial Group and its subsidiaries,
Delphi International Ltd., Oracle Reinsurance Company and
the Lynde and Harry Bradley Foundation.
Martha L. Long............................ Ms. Long has been Senior Vice President and Controller of
MAERIL, Inc. since October 1998. In February 2001, Ms. Long
was appointed head of the service business for AIMCO. From
June 1994 until January 1997, Ms. Long was the Controller
for Insignia, and was promoted to Senior Vice
President -- Finance and Controller in January 1997,
retaining that title until October 1998. From 1988 to June
1994, Ms. Long was Senior Vice President and Controller for
The First Savings Bank, FSB in Greenville, South Carolina.
A-5
Questions and requests for assistance or for additional copies of this
prospectus and the Letter of Transmittal may be directed to the Information
Agent at its telephone number and address listed below. You may also contact
your broker, dealer, bank, trust company or other nominee for assistance
concerning the Offer.
The Information Agent for the offer is:
RIVER OAKS PARTNERSHIP SERVICES, INC.
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone:
TOLL FREE (888) 349-2005
or
(201) 896-1900
By Fax:
(201) 896-0910
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
AIMCO's charter limits the liability of AIMCO's directors and officers to
AIMCO and its stockholders to the fullest extent permitted from time to time by
Maryland law. Maryland law presently permits the liability of directors and
officers to a corporation or its stockholders for money damages to be limited,
except (i) to the extent that it is proved that the director or officer actually
received an improper benefit or profit in money, property or services for the
amount of the benefit or profit in money, property or services actually
received, or (ii) if a judgment or other final adjudication is entered in a
proceeding based on a finding that the director's or officer's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. This provision
does not limit the ability of the Company or its stockholders to obtain other
relief, such as an injunction or rescission.
AIMCO's charter and bylaws require AIMCO to indemnify its directors,
officers and certain other parties to the fullest extent permitted from time to
time by Maryland law. The Maryland General Corporation Law permits a corporation
to indemnify its directors, officers and certain other parties against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made a
party by reason of their service to or at the request of the corporation, unless
it is established that (i) the act or omission of the indemnified party was
material to the matter giving rise to the proceeding and (x) was committed in
bad faith or (y) was the result of active and deliberate dishonesty, (ii) the
indemnified party actually received an improper personal benefit in money,
property or services or (iii) in the case of any criminal proceeding, the
indemnified party had reasonable cause to believe that the act or omission was
unlawful. Indemnification may be made against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by the director or officer
in connection with the proceeding; provided, however, that if the proceeding is
one by or in the right of the corporation, indemnification may not be made with
respect to any proceeding in which the director or officer has been adjudged to
be liable to the corporation. In addition, a director or officer may not be
indemnified with respect to any proceeding charging improper personal benefit to
the director or officer in which the director or officer was adjudged to be
liable on the basis that personal benefit was improperly received. The
termination of any proceeding by conviction, or upon a plea of nolo contendere
or its equivalent, or an entry of any order of probation prior to judgment,
creates a rebuttable presumption that the director or officer did not meet the
requisite standard of conduct required for indemnification to be permitted. It
is the position of the Securities and Exchange Commission that indemnification
of directors and officers for liabilities arising under the Securities Act is
against public policy and is unenforceable pursuant to Section 14 of the
Securities Act.
AIMCO has entered into agreements with certain of its officers, pursuant to
which AIMCO has agreed to indemnify such officers to the fullest extent
permitted by applicable law.
Section 11.6 of the Apartment Investment and Management Company 1997 Stock
Award and Incentive Plan (the "1997 Plan"), Section 2.8 of the Amended and
Restated Apartment Investment and Management Company Non-Qualified Employee
Stock Option Plan (the "Non-Qualified Plan"), Section 2.8 of the Apartment
Investment and Management Company 1996 Stock Award and Incentive Plan (the "1996
Plan"), and Section 6.7 of the 1994 Stock Option Plan of Apartment Investment
and Management Company (the "1994 Plan") specifically provide that, to the
fullest extent permitted by law, each of the members of the Board of Directors
of AIMCO (the "Board"), the Compensation Committee of the Board and each of the
directors, officers and employees of AIMCO, any AIMCO subsidiary, the AIMCO
Operating Partnership and any subsidiary of the AIMCO Operating Partnership
shall be held harmless and indemnified by AIMCO for any liability, loss
(including amounts paid in settlement), damages or expenses (including
reasonable attorneys' fees) suffered by virtue of any determinations, acts or
failures to act, or alleged acts or failures to act, in connection with the
administration of the 1997 Plan,
II-1
the Non-Qualified Plan, the 1996 Plan or the 1994 Plan, as the case may be, so
long as such person is not determined by a final adjudication to be guilty of
willful misconduct with respect to such determination, action or failure to act.
The AIMCO Operating Partnership Agreement requires the AIMCO Operating
Partnership to indemnify its directors and officers (each an "Indemnitee") to
the fullest extent authorized by applicable law against any and all losses,
claims, damages, liabilities, joint or several, expenses (including, without
limitation, attorney's fees and other legal fees and expenses), judgments,
fines, settlements and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative,
that relate to the operations of the AIMCO Operating Partnership. Such
indemnification continues after the Indemnitee ceases to be a director or
officer. The right to indemnification includes the right to be paid by the AIMCO
Operating Partnership the expenses incurred in defending any proceeding in
advance of its final disposition upon the delivery of an undertaking by or on
behalf of the Indemnitee to repay all amounts advanced if a final judicial
decision is rendered that such Indemnitee did not meet the standard of conduct
permitting indemnification under the AIMCO Operating Partnership Agreement or
applicable law.
The AIMCO Operating Partnership maintains insurance, at its expense, to
protect against any liability or loss, regardless of whether any director or
officer is entitled to indemnification under the AIMCO Operating Partnership
Agreement or applicable law.
ITEM 21. EXHIBITS.
EXHIBIT
NO. DESCRIPTION
------- -----------
3.1 Charter (Exhibit 3.1 to AIMCO's Annual Report on Form 10-K
for the fiscal year 2001, is incorporated herein by this
reference)
3.2 Bylaws (Exhibit 3.2 to AIMCO's Annual Report on Form 10-K
for the fiscal year 1999, is incorporated herein by this
reference)
3.3 Third Amended and Restated Agreement of Limited Partnership
of AIMCO Properties, L.P. (Incorporated by reference to
Exhibit 10.1 to Amendment No. 2 to AIMCO Properties, L.P.'s
Form 10 filed on October 28, 1998)
3.4 First Amendment to Third Amended and Restated Agreement of
Limited Partnership of AIMCO Properties, L.P. (Incorporated
by reference to Exhibit 10.9 to AIMCO's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1998)
3.5 Second Amendment to Third Amendment and Restated Agreement
of Limited Partnership of AIMCO Properties, L.P.
(Incorporated by reference to Exhibit 10.1 to AIMCO
Properties, L.P. Current Report on Form 8-K filed on
February 11, 1999)
3.6 Third Amendment to Third Amended and Restated Agreement of
Limited Partnership of AIMCO Properties, L.P., dated as of
February 18, 1999 (Exhibit 10.12 to AIMCO's Annual Report on
Form 10-K for the year ended 1998, is incorporated herein by
this reference)
3.7 Fourth Amendment to the Third Amended and Restated Agreement
of Limited Partnership of AIMCO Properties, L.P., dated as
of March 25, 1999 (Exhibit 10.2 to AIMCO's Quarterly Report
on Form 10-Q for the quarterly period March 31, 1999, is
incorporated herein by this reference)
3.8 Fifth Amendment to the Third Amended and Restated Agreement
of Limited Partnership of AIMCO Properties, L.P., dated as
of March 26, 1999 (Exhibit 10.3 to AIMCO's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1999,
is incorporated herein by this reference)
3.9 Sixth Amendment to the Third Amended and Restated Agreement
of Limited Partnership of AIMCO Properties, L.P., dated as
of March 26, 1999 (Exhibit 10.1 to AIMCO's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1999,
is incorporated herein by this reference)
II-2
EXHIBIT
NO. DESCRIPTION
------- -----------
3.10 Seventh Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as September 27, 1999 (Exhibit 10.1 to AIMCO's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1999, is incorporated herein by this
reference)
3.11 Eighth Amendment to the Third Amended and Restated Agreement
of Limited Partnership of AIMCO Properties, L.P., dated as
of December 14, 1999 (Exhibit 10.9 to AIMCO's Annual Report
on Form 10-K for the year ended 1999, is incorporated herein
by reference)
3.12 Ninth Amendment to the Third Amended and Restated Agreement
of Limited Partnership of AIMCO Properties, L.P., dated as
of December 21, 1999 (Exhibit 10.10 to AIMCO's Annual Report
on Form 10-K for the ended year 1999, is incorporated hereby
by reference)
3.13 Tenth Amendment to the Third Amended and Restated Agreement
of Limited Partnership of AIMCO Properties, L.P., dated as
of December 21, 1999 (Exhibit 10.11 to AIMCO's Annual Report
on Form 10-K for the year ended 1999, is incorporated herein
by reference)
3.14 Eleventh Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of January 13, 2000 (Exhibit 10.12 to AIMCO's
Annual Report on Form 10-K for the year ended 1999, is
incorporated herein by reference)
3.15 Twelfth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of April 19, 2000 (Exhibit 10.2 to AIMCO's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2000, is incorporated herein by this reference)
3.16 Thirteenth Amendment to the Third and Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of August 7, 2000 (Exhibit 10.1 to Quarterly Report
on Form 10-Q of AIMCO Properties, L.P. for the quarterly
period ended June 30, 2000, is incorporated herein by this
reference) ]
3.17 Fourteenth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of September 12, 2000 (Exhibit 10.1 to Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended September 30, 2000, is incorporated
herein by this reference)
3.18 Fifteenth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of September 15, 2000 (Exhibit 10.2 to Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended September 30, 2000, is incorporated
herein by this reference)
3.19 Sixteenth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of September 15, 2000 (Exhibit 10.3 to Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended September 30, 2000, is incorporated
herein by this reference)
3.20 Seventeenth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of November 10, 2000 (Exhibit 10-4 to Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended September 30, 2000, is incorporated
herein by this reference)
3.21 Eighteenth Amendment to the Third and Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of November 16, 2000 (Exhibit 10.19 to AIMCO's
Annual Report on Form 10-K for the year ended 2000, is
incorporated herein by this reference)
3.22 Nineteenth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties L.P.,
dated as of February 28, 2001 (Exhibit 10.20 to AIMCO's
Annual Report on Form 10-K for the year ended 2000, is
incorporated herein by this reference)
3.23 Twentieth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of March 19, 2001 (Exhibit 10.21 to AIMCO's Annual
Report on Form 10-K for the year ended 2000, is incorporated
herein by this reference)
3.24 Twenty-first Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of May 10, 2001 (Exhibit 10.1 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended June 30, 2001, is incorporated herein
by this reference)
II-3
EXHIBIT
NO. DESCRIPTION
------- -----------
3.25 Twenty-second Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of June 20, 2001 (Exhibit 10.2 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended June 30, 2001, is incorporated herein
by this reference)
3.26 Twenty-third Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of July 20, 2001 (Exhibit 10.3 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended June 30, 2001, is incorporated herein
by this reference)
3.27 Twenty-fourth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of August 1, 2001 (Exhibit 10.4 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended June 30, 2001, is incorporated herein
by this reference)
3.28 Twenty-fifth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of July 2, 2001 (Exhibit 10.5 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended June 30, 2001, is incorporated herein
by this reference)
3.29 Twenty-sixth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of July 2, 2001 (Exhibit 10.6 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended June 30, 2001, is incorporated herein
by this reference)
3.30 Twenty-seventh Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of July 2, 2001 (Exhibit 10.7 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended June 30, 2001, is incorporated herein
by this reference)
3.31 Twenty-eighth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of March 25, 2002 (Exhibit 10.1 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended March 31, 2002, is incorporated
herein by this reference)
3.32 Twenty-ninth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of March 11, 2002 (Exhibit 10.2 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended March 31, 2002, is incorporated
herein by this reference)
3.33 Thirtieth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of April 1, 2002 (Exhibit 10.3 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended March 31, 2002, is incorporated
herein by this reference)
3.34 Thirty-first Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of April 10, 2002 (Exhibit 10.4 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended March 31, 2002, is incorporated
herein by this reference)
4.1 Specimen certificate for Class A Common Stock (incorporated
by reference from AIMCO's Registration Statement on Form 8-A
filed on July 19, 1994).
4.2 Specimen certificate for Partnership Common Units of AIMCO
Properties, L.P. (Attached as Exhibit F to Exhibit 3.3)
5.1 Opinion of Piper Rudnick LLP regarding the validity of the
Class A Common Stock offered hereby.*
5.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding the validity of the OP Units offered hereby.*
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding tax matters.*
21.1 Subsidiaries of the Registrants (Exhibit 21.1 to AIMCO's
Annual Report on Form 10-K for the year ended December 31,
2001 is incorporated herein by reference)
23.1 Consent of Ernst & Young LLP, Denver, Colorado
II-4
EXHIBIT
NO. DESCRIPTION
------- -----------
23.2 Consent of Piper Rudnick LLP (included in Exhibit 5.1)*
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibits 5.2 and 8.1)*
23.4 Consent of Ernst & Young LLP, Greenville, South Carolina
24.1 Power of Attorney for Apartment Investment and Management
Company**
24.2 Power of Attorney for AIMCO Properties, L.P.**
99.1 Form of Letter of Transmittal and related Instructions**
99.2 Form of Letter from the AIMCO Operating Partnership to
Limited Partners of VMS National Residential Portfolio II**
---------------
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedules
Not Applicable.
(c) Report, opinion or appraisal
None.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrants' annual reports pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
II-5
employee benefit plan's annual pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrants pursuant to the foregoing provisions, or otherwise,
the registrants have been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrants of expenses incurred
or paid by a director, officer or controlling person of the registrants in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(d) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act, Apartment Investment
and Management Company has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Denver, State of Colorado, on the 12th day of July,
2002.
APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
By: /s/ PETER K. KOMPANIEZ
------------------------------------
Peter K. Kompaniez
Vice Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ TERRY CONSIDINE* Chairman and Chief Executive July 12, 2002
------------------------------------------------ Officer
Terry Considine
/s/ PETER K. KOMPANIEZ Vice Chairman and President July 12, 2002
------------------------------------------------
Peter K. Kompaniez
/s/ PAUL J. MCAULIFFE* Executive Vice President and July 12, 2002
------------------------------------------------ Chief Financial Officer
Paul J. McAuliffe
/s/ THOMAS C. NOVOSEL* Senior Vice President and Chief July 12, 2002
------------------------------------------------ Accounting Officer
Thomas C. Novosel
/s/ JAMES N. BAILEY* Director July 12, 2002
------------------------------------------------
James N. Bailey
/s/ RICHARD S. ELLWOOD* Director July 12, 2002
------------------------------------------------
Richard S. Ellwood
/s/ J. LANDIS MARTIN* Director July 12, 2002
------------------------------------------------
J. Landis Martin
/s/ THOMAS L. RHODES* Director July 12, 2002
------------------------------------------------
Thomas L. Rhodes
*By: /s/ PETER K. KOMPANIEZ
-----------------------------------------
Attorney-in-fact for each
of the persons indicated
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act, AIMCO Properties, L.P.
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Denver, State of Colorado, on the 12th day of July, 2002.
AIMCO PROPERTIES, L.P.
By: AIMCO-GP, INC.
its General Partner
By: /s/ PETER K. KOMPANIEZ
------------------------------------
Peter K. Kompaniez
Vice Chairman and President
of the General Partner
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ TERRY CONSIDINE* Chairman and Chief Executive July 12, 2002
------------------------------------------------ Officer of the General Partner
Terry Considine
/s/ PETER K. KOMPANIEZ Vice Chairman and President of the July 12, 2002
------------------------------------------------ General Partner
Peter K. Kompaniez
/s/ PAUL J. MCAULIFFE* Executive Vice President and July 12, 2002
------------------------------------------------ Chief Financial Officer of
Paul J. McAuliffe the General Partner
*By: /s/ PETER K. KOMPANIEZ
-----------------------------------------
Attorney-in-fact for each
of the persons indicated
II-8
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
3.1 Charter (Exhibit 3.1 to AIMCO's Annual Report on Form 10-K
for the fiscal year 2001, is incorporated herein by this
reference)
3.2 Bylaws (Exhibit 3.2 to AIMCO's Annual Report on Form 10-K
for the fiscal year 1999, is incorporated herein by this
reference)
3.3 Third Amended and Restated Agreement of Limited Partnership
of AIMCO Properties, L.P. (Incorporated by reference to
Exhibit 10.1 to Amendment No. 2 to AIMCO Properties, L.P.'s
Form 10 filed on October 28, 1998)
3.4 First Amendment to Third Amended and Restated Agreement of
Limited Partnership of AIMCO Properties, L.P. (Incorporated
by reference to Exhibit 10.9 to AIMCO's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1998)
3.5 Second Amendment to Third Amendment and Restated Agreement
of Limited Partnership of AIMCO Properties, L.P.
(Incorporated by reference to Exhibit 10.1 to AIMCO
Properties, L.P. Current Report on Form 8-K filed on
February 11, 1999)
3.6 Third Amendment to Third Amended and Restated Agreement of
Limited Partnership of AIMCO Properties, L.P., dated as of
February 18, 1999 (Exhibit 10.12 to AIMCO's Annual Report on
Form 10-K for the year ended 1998, is incorporated herein by
this reference)
3.7 Fourth Amendment to the Third Amended and Restated Agreement
of Limited Partnership of AIMCO Properties, L.P., dated as
of March 25, 1999 (Exhibit 10.2 to AIMCO's Quarterly Report
on Form 10-Q for the quarterly period March 31, 1999, is
incorporated herein by this reference)
3.8 Fifth Amendment to the Third Amended and Restated Agreement
of Limited Partnership of AIMCO Properties, L.P., dated as
of March 26, 1999 (Exhibit 10.3 to AIMCO's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1999,
is incorporated herein by this reference)
3.9 Sixth Amendment to the Third Amended and Restated Agreement
of Limited Partnership of AIMCO Properties, L.P., dated as
of March 26, 1999 (Exhibit 10.1 to AIMCO's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1999,
is incorporated herein by this reference)
3.10 Seventh Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as September 27, 1999 (Exhibit 10.1 to AIMCO's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1999, is incorporated herein by this
reference)
3.11 Eighth Amendment to the Third Amended and Restated Agreement
of Limited Partnership of AIMCO Properties, L.P., dated as
of December 14, 1999 (Exhibit 10.9 to AIMCO's Annual Report
on Form 10-K for the year ended 1999, is incorporated herein
by reference)
3.12 Ninth Amendment to the Third Amended and Restated Agreement
of Limited Partnership of AIMCO Properties, L.P., dated as
of December 21, 1999 (Exhibit 10.10 to AIMCO's Annual Report
on Form 10-K for the ended year 1999, is incorporated hereby
by reference)
3.13 Tenth Amendment to the Third Amended and Restated Agreement
of Limited Partnership of AIMCO Properties, L.P., dated as
of December 21, 1999 (Exhibit 10.11 to AIMCO's Annual Report
on Form 10-K for the year ended 1999, is incorporated herein
by reference)
3.14 Eleventh Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of January 13, 2000 (Exhibit 10.12 to AIMCO's
Annual Report on Form 10-K for the year ended 1999, is
incorporated herein by reference)
3.15 Twelfth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of April 19, 2000 (Exhibit 10.2 to AIMCO's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2000, is incorporated herein by this reference)
3.16 Thirteenth Amendment to the Third and Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of August 7, 2000 (Exhibit 10.1 to Quarterly Report
on Form 10-Q of AIMCO Properties, L.P. for the quarterly
period ended June 30, 2000, is incorporated herein by this
reference)
EXHIBIT
NO. DESCRIPTION
------- -----------
3.17 Fourteenth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of September 12, 2000 (Exhibit 10.1 to Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended September 30, 2000, is incorporated
herein by this reference)
3.18 Fifteenth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of September 15, 2000 (Exhibit 10.2 to Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended September 30, 2000, is incorporated
herein by this reference)
3.19 Sixteenth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of September 15, 2000 (Exhibit 10.3 to Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended September 30, 2000, is incorporated
herein by this reference)
3.20 Seventeenth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of November 10, 2000 (Exhibit 10-4 to Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended September 30, 2000, is incorporated
herein by this reference)
3.21 Eighteenth Amendment to the Third and Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of November 16, 2000 (Exhibit 10.19 to AIMCO's
Annual Report on Form 10-K for the year ended 2000, is
incorporated herein by this reference)
3.22 Nineteenth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties L.P.,
dated as of February 28, 2001 (Exhibit 10.20 to AIMCO's
Annual Report on Form 10-K for the year ended 2000, is
incorporated herein by this reference)
3.23 Twentieth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of March 19, 2001 (Exhibit 10.21 to AIMCO's Annual
Report on Form 10-K for the year ended 2000, is incorporated
herein by this reference)
3.24 Twenty-first Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of May 10, 2001 (Exhibit 10.1 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended June 30, 2001, is incorporated herein
by this reference)
3.25 Twenty-second Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of June 20, 2001 (Exhibit 10.2 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended June 30, 2001, is incorporated herein
by this reference)
3.26 Twenty-third Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of July 20, 2001 (Exhibit 10.3 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended June 30, 2001, is incorporated herein
by this reference)
3.27 Twenty-fourth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of August 1, 2001 (Exhibit 10.4 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended June 30, 2001, is incorporated herein
by this reference)
3.28 Twenty-fifth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of July 2, 2001 (Exhibit 10.5 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended June 30, 2001, is incorporated herein
by this reference)
3.29 Twenty-sixth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of July 2, 2001 (Exhibit 10.6 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended June 30, 2001, is incorporated herein
by this reference)
3.30 Twenty-seventh Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of July 2, 2001 (Exhibit 10.7 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended June 30, 2001, is incorporated herein
by this reference)
EXHIBIT
NO. DESCRIPTION
------- -----------
3.31 Twenty-eighth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of March 25, 2002 (Exhibit 10.1 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended March 31, 2002, is incorporated
herein by this reference)
3.32 Twenty-ninth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of March 11, 2002 (Exhibit 10.2 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended March 31, 2002, is incorporated
herein by this reference)
3.33 Thirtieth Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of April 1, 2002 (Exhibit 10.3 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended March 31, 2002, is incorporated
herein by this reference)
3.34 Thirty-first Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P.,
dated as of April 10, 2002 (Exhibit 10.4 to the Quarterly
Report on Form 10-Q of AIMCO Properties, L.P. for the
quarterly period ended March 31, 2002, is incorporated
herein by this reference)
4.1 Specimen certificate for Class A Common Stock (incorporated
by reference from AIMCO's Registration Statement on Form 8-A
filed on July 19, 1994).
4.2 Specimen certificate for Partnership Common Units of AIMCO
Properties, L.P. (Attached as Exhibit F to Exhibit 3.3)
5.1 Opinion of Piper Rudnick LLP regarding the validity of the
Class A Common Stock offered hereby.*
5.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding the validity of the OP Units offered hereby.*
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding tax matters.*
21.1 Subsidiaries of the Registrants (Exhibit 21.1 to AIMCO's
Annual Report on Form 10-K for the year ended December 31,
2001 is incorporated herein by reference)
23.1 Consent of Ernst & Young LLP, Denver, Colorado
23.2 Consent of Piper Rudnick LLP (included in Exhibit 5.1)*
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibits 5.2 and 8.1)*
23.4 Consent of Ernst & Young LLP, Greenville, South Carolina
24.1 Power of Attorney for Apartment Investment and Management
Company**
24.2 Power of Attorney for AIMCO Properties, L.P.**
99.1 Form of Letter of Transmittal and related Instructions**
99.2 Form of Letter from the AIMCO Operating Partnership to
Limited Partners of VMS National Residential Portfolio II**
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* To be filed by amendment.
** Previously filed.